U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 1O-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000.
OR
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Delaware 11-1719724
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
230 Marcus Blvd., Hauppauge, NY 11788
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(Address or principal executive offices) (Zip Code)
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Securities registered pursuant to Section l2(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.10 par value American Stock Exchange
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Securities registered pursuant to Section l2(g) of the Exchange Act: None
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or l5(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Cover Page 1 of 2 Pages
Indicate by check mark if there is no disclosure herein of delinquent filers pursuant to Item 405 of Regulation S-B, and if, to the best of registrant's knowledge, no disclosure will be contained in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
The Registrant's revenues for the fiscal year ended December 31, 2000 were $10,447,373.
On March 1, 2001 the aggregate market value of the Registrant's Common Stock (based upon the closing sales price of such shares on the American Stock Exchange as reported in The Wall Street Journal) held by non-affiliates of the Registrant was approximately $14,170,212 (Aggregate market value has been estimated solely for the purposes of this report. For the purpose of this report it has been assumed that all officers and directors of the Registrant are affiliates of the Registrant and no person, other than Alfred R. Globus, is an affiliate by virtue of his stockholdings. The statements made herein shall not be construed as an admission for determining the affiliate status of any person.)
As of March 1, 2000 the Registrant had issued 4,901,339 shares of Common Stock, $.10 par value per share ("Common Stock"), of which 4,861,339 shares were outstanding and 40,000 held as Treasury stock as of that date.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE:
Certain information required by Part III (portions of Item 9, as well as Items 10 and 11) is incorporated by reference to the Registrant's definitive proxy statement (the "2001 Proxy Statement") in connection with its 2001 annual meeting of stockholders, which is to be filed no later than April 20, 2001 with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended.
Cover Page 2 of 2 Pages
This Annual Report on Form 10-KSB contains both historical and "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which provides a safe harbor for forward-looking statements by the Registrant about its expectations or beliefs concerning future events, such as financial performance, business prospects, and similar matters. The Registrant desires to take advantage of such "safe harbor" provisions and is including this statement for that express purpose. Words such as "anticipates", "believes", "expects", "intends", "future", and similar expressions identify forward-looking statements. Any such "forward-looking" statements in this report reflect the Registrant's current views with respect to future events and financial performance, and are subject to a variety of factors that could cause Registrant's actual results or performance to differ materially from historical results or from the anticipated results or performance expressed or implied by such forward-looking statements. Because of such factors, there can be no assurance that the actual results or developments anticipated by the Registrant will be realized or, even if substantially realized, that they will have the anticipated results. The risks and uncertainties that may affect Registrant's business include, but are not limited to: economic conditions, governmental regulations, technological advances, pricing and competition, acceptance by the marketplace of new products, retention of key personnel, the sufficiency of financial resources to sustain and expand Registrant's operations, and other factors described in this report and in prior filings with the Securities and Exchange Commission. Readers should not place undue reliance on such forward-looking statements, which speak only as of the date hereof, and should be aware that except as may be otherwise legally required of Registrant, Registrant undertakes no obligation to publicly revise any such forward-looking statements to reflect events or circumstances that may arise after the date hereof.
PART I
(a) General Development of Business
The Registrant is a Delaware corporation that conducts research, product development, manufacturing and marketing of pharmaceuticals, cosmetics, health care products, medical devices, and proprietary industrial products. The Registrant also distributes a line of over 3,000 fine organic chemicals, research chemicals, test solutions, indicators, dyes and reagents.
The Registrant operates in two business segments:
(1) The Guardian Laboratories Division ("Guardian") conducts research, development, manufacturing, and marketing of a variety of pharmaceuticals, medical devices, health care and cosmetic products, and proprietary specialty chemical products. The Research and Development Department of Guardian engages in research and development in the fields of cosmetics, health care products, and specialty industrial chemical products, for the purpose of developing new products, and refining
existing products that will be marketed or licensed by Guardian. Many of the products manufactured by Guardian, particularly its LUBRAJEL(R) line of products, are marketed worldwide through a network of distributors, and are currently used by many of the major multinational cosmetic companies.
The Registrant presently has a broad range of products, some of which are currently marketed, some of which are marketable but are not currently marketed by the Registrant, and some of which are still in the developmental stage. Of the products being actively marketed, the two largest product lines are Registrant's LUBRAJEL(R) line of cosmetic ingredients, which accounted for approximately 61.2% of the Registrant's sales in 2000, and its RENACIDIN(R) IRRIGATION, a pharmaceutical product that accounted for approximately 15.0% of the Registrant's sales in 2000. The Registrant actively seeks other companies as potential marketers for its products, particularly for those products that are not yet being actively marketed by the Registrant.
(2) Eastern Chemical Corporation ("Eastern"), a wholly-owned subsidiary of the Registrant, distributes an extensive line of fine organic chemicals, research chemicals, test solutions, indicators, dyes, stains, and reagents. Since the Registrant's business activities and marketing efforts over the past several years have focused increasingly on the Guardian division, which the Registrant believes has greater growth potential, the Registrant is in the process of reducing Eastern's inventory levels in order to make the subsidiary more marketable in the event Registrant decides to sell the Eastern operation at some future date. Registrant believes that if the Registrant were to sell Eastern, the loss of revenue from that subsidiary would not significantly impact the Registrant's net income.
(b) Narrative Description of Business
Guardian Laboratories Division
Guardian conducts research, product development, manufacturing and marketing of many different personal care products, pharmaceuticals, medical devices, health care products, cosmetic bases, and proprietary specialty chemical products, all of which are developed by the Registrant, and many of which have unique properties. The products manufactured by Guardian are marketed through marketing partners, distributors, direct advertising, mailings, and trade exhibitions. Guardian's proprietary cosmetic and specialty chemical products are sold through marketing partners and distributors and are incorporated into products marketed by many of the major international cosmetic companies. Many of Guardian's products are marketed through collaborative agreements with larger companies. The pharmaceutical products are sold to end users primarily through drug wholesalers and surgical supply houses. There are also indirect sales to the Veteran's Administration and other government agencies, and to some hospitals and physicians.
During 2000, Guardian's sales accounted for approximately 85.5% of Registrant's total product sales.
Guardian's products are sold under trademarks or trade names owned by the Registrant. The marks for the most important products, LUBRAJEL and RENACIDIN, are registered as trademarks in the United States Patent and Trademark Office ("Patent Office"). In 2000 sales from these two product lines accounted for approximately 89.1% of Guardian's sales, and 76.2% of the sales of the Registrant as a whole.
LUBRAJEL
LUBRAJEL is a line of nondrying water-based moisturizing and lubricating gels that have applications in the cosmetic industry primarily as a moisturizer and as a base for other cosmetic products, and in the medical field primarily as a lubricant. In the cosmetic industry it is used primarily as a stable gel for application around the eyes and on the face and as an ingredient in skin creams and moisturizers, makeup, body lotions, hair preparations, salves, and ointments. As a medical lubricant it has been used on prelubricated enema tips and thermometers, and as a lubricant for catheters. During 2000, sales of LUBRAJEL products increased by 41.3% from $4,527,845 in 1999 to $6,396,186 in 2000. Sales of LUBRAJEL products represented 71.6% of Guardian's sales and 61.2% of the sales of the Registrant as a whole. The most important product in the LUBRAJEL line in 2000 was LUBRAJEL CG (the original form of LUBRAJEL), which increased in sales from $1,623,778 in 1999 to $2,175,097 in 2000, an increase of 34%. Sales of the second largest revenue producer in the Lubrajel line, LUBRAJEL MS, increased 64% from $1,055,096 in 1999 to $1,730,202 in 2000. LUBRAJEL OIL, another important product in the LUBRAJEL line, increased 82.6% from $356,757 in 1999 to $651,456 in 2000. The Registrant believes that the increase in LUBRAJEL sales was primarily the result of greater market penetration into Registrant's existing markets through the joint efforts of Registrant and its marketing partners, as well as the opening of new markets, particularly in mainland China, by Registrant's marketing partners. None of the revenue increase was the result of price increases, since Registrant has made an effort to maintain pricing at 1999 levels on its personal care products.
As a result of the continuing efforts of its marketing partners and distributors Registrant believes that LUBRAJEL sales will continue to increase in 2001 in the United States, Asia, and Europe. These sales increases may be offset somewhat by continuing competition from products introduced by Registrant's competitors. Despite this competition Registrant still believes that there will be an overall increase in sales, but that the extent of the increase will be dependent on the ability of Registrant's marketing partners to continue to bring in new customers. Registrant believes that LUBRAJEL'S reputation for quality and customer service will enable it to continue to compete effectively in the marketplace.
RENACIDIN
RENACIDIN is a urological prescription drug used primarily to prevent the formation of and to dissolve calcifications in catheters implanted in the urinary bladder. It is marketed as a ready to use 10% sterile solution under the name "RENACIDIN IRRIGATION". RENACIDIN IRRIGATION is also approved for use in dissolving certain types of kidney
stones. On October 9, 1990, the Patent Office issued to the Registrant a patent covering the method of manufacturing RENACIDIN IRRIGATION. Sales of RENACIDIN IRRIGATION in 2000 accounted for 17.5% of Guardian's sales and 15.0% of the sales of the Registrant as a whole. Sales of RENACIDIN IRRIGATION in 2000 increased slightly from $1,540,216 in 1999 to 1,566,068 in 2000. This increase was the result of a price increase instituted in April, 2000, since sales volume actually decreased by 0.8% as compared to 1999.
Other Products
Other significant products that are manufactured and sold by Guardian but which did not individually comprise more than 5% of the Registrant's sales in 2000 are as follows:
CLORPACTIN(R) WCS-90 is a microbicidal product used primarily in urology and surgery as an antiseptic for treating a wide range of localized infections in the urinary bladder, the peritoneum, the abdominal cavity, the eye, ear, nose and throat, and sinuses. The product is a white powder that is made into a liquid prior to use. It is a powerful disinfectant, fungicide, deodorizer, bleach, and detergent. Sales of CLORPACTIN amounted to $303,814 in 2000 compared to $276,596 in 1999, an increase of 9.8%.
KLENSOFT is a surfactant that can be used in shampoos, body washes, makeup removers, and other cosmetic formulations. The primary customer for Klensoft over the past few years has been in Taiwan. However, in 1999 and 2000 significant new business has come from a customer in the United Kingdom. In addition, customers in France and Korea have also begun purchasing the product. After having declined significantly in 1997 and 1998, sales increased in 1999 to $164,289, and increased even further in 2000 to $240,102, an increase of 46.2% over 1999. Registrant believes that Klensoft sales will decrease in 2001 due to large inventories being held by the distributors that supply the product to Taiwan and the United Kingdom.
PHOSPHOCHOLATE is a mouth moisturizer used primarily by cancer patients. The product was developed for, and had been marketed exclusively by, an Illinois health care company, but in 1999 that company replaced PHOSPHOCHOLATE with a less expensive product and discontinued their purchases from the Registrant. Registrant is currently looking for other customers, and until that happens Registrant does not expect any further sales of this product.
LUBRAJEL PF is a preservative-free form of LUBRAJEL currently being marketed primarily by Societe D'Etudes Dermatologiques ("Sederma") under the tradename "Norgel". Sederma is the Registrant's distributor of LUBRAJEL in France and a major European cosmetic supplier. Tests conducted by Sederma indicated that the product self-preserved, and aided in the preservation of other cosmetic ingredients with which it was formulated. Sales of Lubrajel PF amounted to $211,260 in 2000 compared with $97,720 in 1999, an increase of 116%. Registrant believes that this increase is attributable primarily to the buying pattern of Sederma.
CONFETTI II DERMAL DELIVERY FLAKES is a new product line introduced in 2000 to replace a previous product line, CONFETTI DERMAL ESSENTIALS. That product line, which had been introduced in 1996, incorporated various functional oil-soluble ingredients into colorful flakes that could be added to and suspended in various water-based products. The product color and ingredients could be customized to meet the needs of individual customers. Sales of this previous product line declined from $170,381 in 1999 to $63,936 in 2000 as a result of the incompatability of the product with certain cosmetic formulations, which limited its use. In 2000 the Registrant reformulated this product and late in the year introduced CONFETTI II DERMAL DELIVERY FLAKES into the cosmetic market. This improved product has much broader compatability, which will enable it to be incorporated into cosmetic formulations with which it was previously incompatible. Registrant believes that this new formulation will result in increased sales of the product over the next few years, and expects sales of the original CONFETTI DERMAL ESSENTIALS line to gradually be replaced by the improved product.
LUBRAJEL RR and RC are special grades of LUBRAJEL that can withstand sterilization by gamma radiation, which is one of the methods of terminally sterilizing medical and hospital products. On April 11, 1995, the Registrant was granted a U.S. patent for this unique form of LUBRAJEL. In September, 1994 the Registrant entered into a marketing agreement with Horizon Medical, Inc., a California company engaged in the development and manufacturing of products and services to the medical device and pharmaceutical industries. Horizon has been actively marketing the product since January, 1996. Sales of LUBRAJEL RC to Horizon increased significantly from $276,419 in 1999 to $413,517 in 2000, an increase of 49.6%. This increase was the result of new business developed by Horizon.
Other products that do not have significant sales at the present time but have the potential for increased sales in the future, and which as a group constituted approximately 3.6% of Registrant's sales in 2000, are as follows:
LUBRASIL and LUBRASIL DS are special types of LUBRAJEL in which silicone oil is incorporated into a LUBRAJEL base by microemulsification, while maintaining much of the clarity of regular LUBRAJEL. The products have a silky feel, and are water resistant while moisturizing the skin.
RAZORIDE is a clear, water-based, surfactant and soap-free shaving product with excellent lubricity and moisturizing properties. The Registrant is currently initiating an effort to market this product using several methods, including mail order catalogs. Registrant has retained a consultant to work with it to find marketing partners to help bring this product to the retail market, and is also working with an advertising agency to locate additional potential marketing partners for this product as well as some of Registrant's other products. Registrant is currently selling this product in bulk to two companies marketing it as a shaving product, one in an institutional market, and the other in a health care market.
UNITWIX(TM) is a cosmetic additive used as a thickener for oils and oil-based liquids. It is a proprietary, unpatented product that does not require government approval to market.
DESELEX(R) is a replacement for phosphates in detergents.
LUBRASLIDE(TM) and a related product, B-122(TM), are powders used in the manufacture of cosmetics such as pressed powders, eye shadows, and rouges.
FOAMBREAKER(TM) is a defoamer for cleansing solutions in the electroplating, painting, and electronics industries. The product does not leave the typical "fish-eye" residues associated with silicone defoamers. It is an industrial product that does not require governmental registrations or approvals. It is an unpatented, proprietary product.
OIL OF ORCHIDS(TM) is a base for skin creams, lotions, cleansers, and other cosmetics. This product is an extract of fresh orchids, modified by extractants, stabilizers, and preservatives. It is soluble in water and alcohol and acts as a supplementary moisturizer. It is also an enhancer for fragrances in perfumes and toiletries. It is sold in two forms, water-soluble and oil soluble.
DERMA-SURE PROTECTIVE LOTION is an alcohol-based product applied to the skin which protects the skin against grease, oil, paint, stain, and many other chemicals. The product can be both a consumer and industrial product. The Registrant is looking into various alternatives for marketing this product.
Development Activities
Guardian's Research and Development Department has developed a large number of products that can be used in many different industries, including the pharmaceutical, medical, cosmetic, health care, and specialty chemical industries. These products are in various stages of development, some being currently marketable and some being in the very early stages of development requiring a substantial amount of development work to bring them to market. New uses for currently marketed products are also being developed. Once a product is created, the initial development work on it may consist of one or more of the following: (a) laboratory refinements and adjustments to suit the intended uses of the product; (b) stability studies to determine the effective shelf-life of the product and suitable storage and transportation conditions for the product; and (c) laboratory efficacy tests to determine the effectiveness of the product under different conditions.
After the Research and Development Department has completed its initial work on a product and is satisfied with the results of that work, further development work to bring the product to market will continue, including some or all of the following: (a) animal and human clinical studies needed to determine safety and effectiveness of drug or medical device products, which would be needed for submissions to the appropriate regulatory agencies, such as the United States Food and Drug Administration ("FDA") or the United States Environmental Protection
Agency ("EPA"); (b) preparatory work for the filing of Investigational New Drug Applications or New Drug Applications; (c) market research to determine the marketability of the product, including the potential market size and most effective method of marketing the product; (d) scaling up from laboratory production batches to pilot batches, and then to full scale production batches, including the determination of the type of equipment necessary to produce the product; (e) upgrading or purchasing new equipment to manufacture the products; and (f) the negotiation of joint venture or distribution agreements to develop and/or market the product. Some of the foregoing work may be done by outside contractors.
While there can be no assurance that any particular project will result in a new marketable product or a commercially successful product, the Registrant believes that a number of its development projects, including those discussed below, may have commercial potential.
LUBRAJEL
Preliminary studies indicated that LUBRAJEL may help to accelerate the healing of wounds, such as leg ulcers, when applied daily and used in conjunction with a Spandex or similar bandage. The Registrant believes that an additional study done on a larger group of patients is warranted. Horizon Medical, Inc. (see "LUBRAJEL RR" discussion above) had done some work with the product for this use, and received authorization from the FDA to market the product as an accessory to a medical device for specific wound healing uses. Registrant is continuing to look for other potential marketers for this product.
The Registrant is also engaged in a major project with a company based in the United Kingdom for the use of a modified form of one of its Lubrajels in a globally marketed consumer health product. The exact nature of this project cannot yet be disclosed due to confidentiality agreements between the Registrant and this U.K. company. In 2000 some initial shipments of product were made to this company for a market test, but full scale marketing is not expected until mid-2001 assuming the market tests are satisfactory.
CLORONINE
Cloronine is a powerful disinfectant, germicide, and sanitizer for disinfecting medical and surgical instruments and equipment (particularly where autoclaves are not available), and for the purification of water supplies. The product had been approved for certain uses in France and Canada, and is still being sold in Canada. Before this product can be marketed in the United States for any purpose, additional tests will have to be done to determine if the product can be registered with the EPA as a sterilant or germicide. These tests would comprise laboratory microbiological studies, compatibility studies, and specific studies on its intended uses. The product will also have to be registered with the FDA as an accessory to a medical device. Neither registration process has yet begun. Due to the expense and time required, the Registrant hopes to work jointly with other companies to obtain these registrations. The Registrant was granted two patents for this product.
CLORPACTIN
The Registrant is currently looking for a partner to work with Registrant in determining the effectiveness of Clorpactin in the treatment of periodontal disease and, if the product proves to be effective, to work with Registrant in obtaining the necessary regulatory approval to market the product for that use.
SONARITE
Sonarite is a product that was originally developed by the Registrant to reduce the severity of snoring. It is a soft tissue lubricant that reduces the surface tension in obstructed airways and allows for increased air flow. The product has been in development for many years. An initial test of a previous formulation of the product indicated that it provided some relief to patients suffering from mild to moderate sleep apnea. However, one of the key raw materials was discontinued and the Registrant is still in the process of trying to find a satisfactory substitute.
Trademarks and Patents
The Registrant strongly believes in protecting its intellectual property and intends whenever possible to make efforts to obtain patents in connection with its product development program. The Registrant currently owns many United States patents relating to its products. The Registrant has patent applications pending with respect to a number of its research and development products. Patents formerly held by the Registrant on certain products have expired. There can be no assurance that any patents held by the Registrant will be valid or otherwise of value to the Registrant or that any patent applied for will be granted. However, the Registrant believes that its proprietary manufacturing techniques and procedures with respect to certain products offer it some protection from duplication by competitors regardless of the patent status of the products.
The various trademarks and trade names owned or used by the Registrant in Guardian's business are of varying importance to the Registrant. The most significant products for which the Registrant has a registered trademark are LUBRAJEL, RENACIDIN, and CLORPACTIN.
Set forth below is a table listing certain information with respect to all unexpired U.S. patents held by the Registrant:
PATENT NAME PATENT # ISSUE DATE EXPIRATION
DATE
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Treatment of Hazardous Waste 4,581,130 4/8/86 4/8/03
Treatment of Hazardous Materials; Dehalogenation 4,601,817 7/22/86 7/22/03
with sodium-copper-lead alloy
Treatment of Hazardous Waste - ternary alloy and oil 4,695,400 9/22/87 9/22/04
slurry thereof; sodium, copper, lead
Iodophor; Polyethylene Glycol Alkylaryl-sulfonate 4,873,354 10/10/89 10/10/06
Iodine complex
Thermal Resistant Microbial Agent ("Cloronine") 4,954,316 9/4/90 9/4/07
Method of Preparing Time-Stable Solutions of Non- 4,962,208 10/9/90 10/9/07
Pyrogenic Magnesium Gluconocitrate ("Renacidin
Irrigation")
Use of Clorpactin for the Treatment of Animal 4,983,634 1/8/91 1/8/08
Mastitis & the applicator used in that treatment
(owned jointly by the Registrant and Diversey Ltd.)
Iodophor; biocide; reacting polyethylene glycol, 5,013,859 5/7/91 5/7/08
alkylarylsulfonate and Iodine water-propylene glycol
solvent refluxing
Stabilized Beta Carotene 5,023,355 6/11/91 6/11/08
Stable, Active Chlorine Containing Anti-microbial 5,128,342 7/7/92 7/7/09
Compositions ("Cloronine")
Gamma Radiation Resistant Lubricating Gel 5,405,622 4/11/95 4/11/12
Delivery system for oil soluble actives in cosmetic/ 6,117,419 9/12/00 9/12/17
personal care products
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The Registrant requires all employees and consultants who may receive proprietary information to agree in writing to keep such proprietary information confidential.
Eastern Chemical Corporation
Eastern Chemical Corporation is a wholly owned subsidiary of the Registrant. It distributes an extensive line of fine organic chemicals,
research chemicals, test solutions, indicators, dyes and stains, and reagents. In 2000, Eastern's sales accounted for approximately 14.5% of the total product sales of the Registrant versus 19.8% in 1999. Eastern's sales decreased by 17.8% in 2000. About 75% of this decrease was the result of the loss of sales to three large customers for one or two products each due to the end of projects. The balance of the decrease was the result of loss of sales resulting from the Registrant's continuing efforts to reduce Eastern's inventory, which resulted in an inability to service certain purchase requests that required immediate shipment from inventory.
Marketing
Guardian markets its products through (a) distributors; (b) advertising in medical and trade journals, by mailings to physicians and to the trade; and (c) exhibitions at appropriate medical meetings. The pharmaceutical products are generally sold in the United States to drug wholesalers, surgical supply houses and drug stores for resale, and directly to hospitals, physicians, the Veteran's Administration, and other government agencies. The proprietary cosmetic and specialty chemical products are sold to distributors for resale and directly to manufacturers for use as ingredients or additives in the manufacture or compounding of other cosmetic or chemical products.
Eastern's products are marketed through advertising in trade publications and direct mailings. They are sold to distributors and directly to users in a wide variety of applications. Eastern does not sell any unique products and is not dependent on any single customer or group of customers on a continuous basis.
Domestic Sales
In the United States Registrant's cosmetic products are marketed exclusively by International Specialty Products ("ISP") in accordance with a marketing agreement entered into on July 5, 2000, which replaced and superseded two previous marketing agreements entered into in 1994 and 1996 (see "Marketing Agreements" below). ISP also has some rights to sell some of Registrant's other industrial and medical products. In 2000 ISP's purchases for distribution in the United States were estimated to be approximately $1,443,000 compared to $1,078,000 in 1999, and accounted for approximately 13.8% of the Registrant's sales*. Registrant's domestic sales of pharmaceutical products are handled primarily through the major full-line drug wholesalers and account for approximately 17.9% of Registrant's sales. Registrant's other products, such as its industrial products, are sold directly to end-users by the Registrant and account for less than 2% of Registrant's sales. (*Note: this figure is an estimate based on sales information provided to Registrant by ISP. Registrant has no way of independently determining which of ISP's purchases from Registrant are intended for domestic sale and which are intended for foreign sale.)
Foreign Sales
In 2000 the Registrant derived approximately 43.2% of its sales
from customers in foreign countries, primarily from sales of its cosmetic
products in Europe and Asia, compared to 41.5% in 1999. The Registrant
currently has 7 distributors for its cosmetic products outside the United
States: S. Black Ltd. in the United Kingdom ("S. Black"); Sederma and
Warwick France in France; Luigi & Felice Castelli S.R.L. in Italy; S.
Black Gmbh in Switzerland; C&M International in Korea; and ISP in
Germany, Spain, Eastern Europe, the Benelux countries, Canada, Mexico,
South & Central America, Asia (with the exception of Korea), and most of
the remaining foreign markets. The percentage of Registrant's sales
attributable to its largest foreign distributors were as follows: ISP:
17.2% (an estimate ISP's purchases intended for sale outside the U.S.,
based on foreign sales figures provided to the Registrant by ISP);
Sederma: 12.3%; S. Black: 5.6%; and C&M International: 3%.
Marketing Agreements
ISP
In 1994 Registrant entered into an agreement with ISP whereby ISP would market certain of Registrant's products, primarily its cosmetic products, in Europe, Asia, Australia, and Africa. That agreement established an alliance with ISP that was intended to bring the Registrant's products to many regions of the world where either they had not been marketed before, or where previous marketing efforts had been unsatisfactory. The major focus of that agreement was the Far East, but also included Eastern Europe, Russia, and some countries in Western Europe, most importantly Germany. The agreement provided for exclusivity in those areas as long as minimum purchase requirements were met. ISP manufactures and markets an extensive line of personal care, pharmaceutical, and industrial products on a global basis.
In 1996 Registrant entered into an additional marketing agreement with ISP whereby ISP became Registrant's exclusive distributor of its cosmetic products in the United States, Canada, Mexico, and Central and South America, thereby significantly expanding ISP's territory. As with its earlier agreement, this agreement provided for exclusivity as long as yearly minimum purchase levels are attained. Accompanying this agreement was a modification to the 1994 agreement to provide consistency between the two agreements.
In 2000 Registrant and ISP entered into a new agreement that consolidated the two previous agreements into one agreement and modified some of the terms and conditions under which ISP would be marketing Registrant's products. The new agreement gives the Registrant greater flexibility in appointing other marketing partners in areas where ISP is not active or has not been successful, and gives ISP certain additional territories in which they can market the Registrant's products.
Registrant believes that in the event ISP were to cease marketing Registrant's products, alternative arrangements could be made to continue to supply product to the customers currently using Registrant's products without any significant interruption of supply.
The only other written marketing agreement that the Registrant has is with S. Black Ltd., which was entered into in January, 1995 for a five year period that was set to end December 31, 1999, but which both parties have allowed to automatically renew for an additional three year period ending December 31, 2002. All of the Registrant's other marketing arrangements can be terminated at any time by either party.
Raw Materials
The principal raw materials used by the Registrant consist of common industrial organic chemicals, laboratory reagents, and common inorganic chemicals. Most of these materials are available in ample supply from numerous sources. The Registrant's principal raw material suppliers are Proctor and Gamble, Callahan Chemical Company, Van Waters & Rogers, Inc., Protameen Chemicals Inc., Alzo, Inc., Morton Thiokol, Esprit Chemical Company LP, Eastman Chemical Products, Clariant Corp., Ishihara U.S.A., Nissei Trading Co., and Varessa, Ltd.
Inventories; Returns and Allowances
The Registrant's business requires that it maintain moderate inventories of certain of its finished goods. Historically, returns and allowances have not been a significant factor in the Registrant's business.
Backlog
The Registrant currently does not have any significant backlog.
Competition
Guardian has many products or processes that are either unique in their field or have some unique characteristics, and therefore are not in direct competition with the products or processes of other pharmaceutical, chemical, or health care companies. However, the pharmaceutical, health care, and cosmetic industries are all highly competitive, and the Registrant expects competition to intensify as advances in the field are made and become widely known. There may be many domestic and foreign companies that are engaged in the same or similar areas of research as those in which the Registrant is engaged, many of which have substantially greater financial, research, manpower, marketing and distribution resources than the Registrant. In addition, there are many large, integrated and established pharmaceutical, chemical and cosmetic companies that have greater capacity than the Registrant to develop and to commercialize types of products upon which the Registrant's research and development programs are based. The Registrant believes that manufacturing, regulatory, distribution and marketing
expertise will be increasingly important competitive factors. In this regard, the Registrant believes that arrangements with major health care and medical or hospital products suppliers will be important factors in the commercialization of many of the products which it is currently developing.
Eastern faces competition from many other chemical manufacturers and distributors, many of which have much greater financial resources than those of the Registrant. Eastern's competition is based primarily upon price, service and quality. Eastern attempts to maintain its competitive position in the industry through its ability to (i) locate and make wholesale arrangements to purchase the chemicals with suppliers located all over the world, (ii) maintain a sufficient inventory of each of its items at all times, and (iii) customize each order as to quantity of the item requested and to tailor the price of the order to such quantity. Eastern's primary competitors are SA Fine Chemicals, Acros Organics, Pfaltz & Bauer, Inc., and Spectrum Chemical Mfg. Corp.
ISO-9000 REGISTRATION
On November 24, 1998 the Registrant earned ISO-9002 registration from Underwriters Laboratories, Inc., indicating that the Registrant's documented procedures and overall operations had attained the high level of quality needed to receive ISO registration. Registrant continues to be evaluated every six months for continued compliance with ISO-9002 standards, and is currently in good standing under this registration.
Government Regulation
Regulation by governmental authorities in the United States and other countries is a significant factor in the manufacturing and marketing of many of the Registrant's products. The Registrant and many of Registrant's products are subject to certain government regulations. Products that may be developed and sold by the Registrant in the United States may require approval from federal regulatory agencies, such as the FDA, as well as state regulatory agencies. Products that may be developed and sold by the Registrant outside of the United States may require approval from foreign regulatory agencies. Any medical device products developed by the Registrant will be subject to regulation by the Center for Devices and Radiological Health of the FDA, and will usually require a 510(k) pre-market notification. Most pharmaceutical products will require clinical evaluation under an Investigational New Drug ("IND") application prior to submission of a New Drug Application ("NDA") for approval of a new drug product.
A drug product normally must go through several phases in order to obtain FDA approval. The research phase involves work up to and including discovery, research, and initial production. Next is the pre-clinical phase, which involves studies in animal models necessary to support an IND application to the FDA and foreign health registration authorities to commence clinical testing in humans. Clinical trials for pharmaceutical products are conducted in three phases. In Phase I, studies are conducted to determine safety and dosages. In Phase II, studies are conducted to gain preliminary evidence as to the efficacy of
the product. In Phase III, studies are conducted to provide sufficient data for the statistical proof of safety and efficacy, including dose regimen. Phase III is the final stage of such clinical studies prior to the submission of an application for approval of an NDA. The amount of time necessary to complete any of these phases cannot be predicted with any certainty.
In all cases, the Registrant is required to comply with all pertinent Good Manufacturing Practices of the FDA for medical devices and drugs. Accordingly, the regulations to which the Registrant and certain of its products may be subject, and any changes with respect thereto, may materially affect the Registrant's ability to produce and market new products developed by the Registrant.
The Registrant's present and future activities are, and will likely continue to be, subject to varying degrees of additional regulation under the Occupational Safety and Health Act, Environmental Protection Act, import, export and customs regulations, and other present and possible future foreign, federal, state and local regulations.
Portions of the Registrant's operating expenses are directly attributable to complying with federal, state, and local environmental statutes and regulations. In 2000 and 1999 the Registrant incurred approximately $44,000 and $39,000 respectively, in environmental compliance costs.
Research and Development Expense
Portions of the Registrant's operating expenses are directly attributable to research and development the Registrant performs. In 2000 and 1999, the Registrant incurred approximately $294,000 and $267,000, respectively, in research and development expenses. The expenses consist of direct costs as well as factory overhead. No portion of the research and development expenses was directly paid by the Registrant's customers.
Revenue and Earnings
The tables below set forth, for the years indicated, the revenue (including fees and retainers), and earnings from operations attributable to the Registrant and to the Registrant's business segments:
YEAR ENDED YEAR ENDED
December 31, December 31,
2000 1999
---- ----
Revenue:
-------
Guardian $ 8,937,634 $ 7,321,871
Eastern 1,509,740 1,814,862
--------- ---------
$10,447,374 $ 9,136,733
========== =========
Page 14
|
Earnings from Operations:
------------------------
Guardian $ 3,258,271 $ 2,269,346
Eastern 50,795 31,371
Corporate and other 57,439 ( 63,536)
--------- ---------
$ 3,366,505 $ 2,237,181
========== =========
|
Identifiable Assets
The table below sets forth as of the dates indicated the identifiable assets of the Registrant as a whole, as well as the identifiable assets of the Registrant's business segments:
As of:
---------------------------------
December 31, December 31,
2000 1999
---------- ----------
Guardian $ 2,898,447 $ 2,321,345
Eastern 492,775 542,683
Corporate 6,006,193 5,030,896
---------- ---------
$ 9,397,395 $ 7,894,924
========== ==========
|
For certain additional financial information concerning the Registrant's industry segments see Note I of Notes to Consolidated Financial Statements of the Registrant contained in Item 7 herein.
Employees
The Registrant presently employs 44 people, 6 of whom serve in an executive capacity, 23 in research, quality control and manufacturing, 5 in maintenance and construction and 10 in office and administrative work. Of the total number of employees, 41 are full time employees. None of the Registrant's employees are covered by a collective bargaining agreement. The Registrant believes that its relations with its employees are satisfactory.
The Registrant maintains its principal offices and conducts most of its research at 230 Marcus Boulevard, Hauppauge, New York 11788. These premises, which the Registrant owns, contain approximately 30,000 square feet of manufacturing space, 15,000 square feet of warehouse space, and 5,000 square feet of office and laboratory space on approximately 2.7 acres of land. The Registrant has now fully developed the 2.7 acres, and fully utilizes the buildings occupying the land. The Registrant believes that the aforementioned property is adequate for its immediately foreseeable needs. The property is presently unencumbered and is adequately insured.
None
None.
PART II
Market Information
The Common Stock of the Registrant is traded on the American Stock Exchange (the "AMEX") under the symbol "UG". The following table sets forth for the periods indicated the high and low closing sale prices of the shares of Common Stock, as reported by the AMEX Market Statistics for the period January 1, 1999 to December 31, 2000. The quotations represent prices between dealers and do not include retail markup, markdown or commission:
Year Ended Year Ended
Quarters December 31, 2000 December 31, 1999
-------------------------------------------------------------------------
High Low High Low
First (1/1 - 3/31) $ 5 5/16 $ 3 3/8 $ 4 9/16 $ 2 3/4
Second (4/1 - 6/30) 5 3/16 4 4 3/4 2 7/8
Third (7/1 - 9/30) 5 1/4 4 1/4 4 7/8 3 9/16
Fourth (10/1 - 12/31) 5 3 3/4 4 1/4 3
|
Holders of Record
As of March 1, 2001 there were 1176 holders of record of Common Stock.
Cash Dividends
On January 5, 2001 the Registrant paid a $.10 per share dividend to all stockholders of record as of December 18, 2000. On January 7, 2000 the Registrant paid an $.08 per share dividend to all stockholders of record as of December 15, 1999.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results Of Operations:
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenue
Consolidated revenue in 2000 increased by $1,310,641 (14%) compared to 1999 due to revenue increases in the Guardian Division of $1,615,763 (22%) and a decrease in the Eastern Division of $305,122 (17%). The Guardian sales increase was due mainly to increases in sales of Guardian's core products as a result of the efforts of it marketing partners, as well as normal fluctuations in the purchasing patterns of customers. The decrease in Eastern sales was the result of both a downsizing of the Eastern operation as well as normal fluctuations in the purchasing patterns of customers.
Costs and Expenses
Costs and expenses in 2000 increased by $301,971 (4%) compared to the prior year due to increases in cost of sales of $104,815 (2%) and increases in operating expenses of $197,156 (10%). Costs of sales as a percentage of sales decreased to 48% in 2000 as compared to 54% in 1999.
The 6% decrease in cost of sales as a percentage of sales was attributable primarily to an efficiency in overhead absorption created by an increase in production during 2000 compared to 1999.
The increase in operating expenses in 2000 was primarily due to the payment of employee bonuses and pay increases in the second quarter of 2000. The employee bonuses are in accordance with a company-wide employee bonus program that was implemented in the second quarter of 1999. The program calls for the payment once a year of a bonus to all qualifying employees when the Compensation Committee of the Board of Directors determines that operating results are sufficient to do so.
Other Income (Expense)
Interest expense decreased from $581 in 1999 to $536 in 2000. Investment and other income increased from $112,739 to $238,144 principally due to the investing of excess cash provided from operations. The Registrant realized gains on sale of assets of $4,796 in 1999.
Provision for Income Taxes
The provision for income taxes increased from $847,000 in 1999 to $1,313,132 in 2000. This increase is primarily due to the increase in earnings before income taxes of $1,129,324 (50%) between years. The Registrant's effective rates remained consistent at approximately 39%.
Liquidity and Capital Resources
Working capital increased from $5,163,798 as of the end of 1999 to $6,882,794 as of the end of 2000, an increase of $1,718,996 (33%). The current ratio increased from 6.9 to 1 at December 31, 1999 to 7.8 to 1 at December 31, 2000. The increase in working capital was due primarily to increases in cash provided by operations.
The Registrant has a line of credit agreement with a bank for borrowings of up to $700,000. As of December 31, 2000, there were no outstanding borrowings on this line of credit.
The Registrant generated cash from operations of $2,428,412 in 2000 compared to $1,831,260 in 1999. The increase in 2000 was primarily due to increased earnings. During the years 2000 and 1999 the Registrant invested approximately $147,000 and $95,000, respectively, for plant and equipment. Cash used in investing activities was $1,846,013 and $798,656 in the years ended December 31, 2000 and 1999 respectively. The increase in 2000 was mainly due to an increase in the purchase of temporary investments. Cash used in financing activities was $370,143 and $338,658 in the years ended December 31, 2000 and 1999 respectively. The increase was primarily due to an increase in dividends paid in 2000. While the Registrant believes that its working capital is sufficient to support its operating requirements for the next fiscal year, the Registrant's long-term liquidity position will be dependent upon its ability to generate sufficient cash flow from operations. Registrant has no material commitments for future capital expenditures.
Impact of Inflation, Changing Prices, and Seasonality
While it is difficult to assess the impact of inflation on the Registrant's operations, management believes that, because of the proprietary nature of the majority of its product line, inflation has had little impact on net sales. Sales have changed as a result of volume and product mix. While inflation has had an impact on the cost of sales and payroll, these increases have been recaptured by price increases to the greatest extent possible. Registrant's products and sales are not considered to be seasonal, and are generally distributed evenly throughout the year.
Item 7. Financial Statements.
Annexed hereto starting on page F-1
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not Required.
PART III
Directors and Executive Officers
Set forth in the table below is certain information as of March 9, 2001 with respect to the executive officers and directors of the Registrant:
Name Age Position(s) with the Registrant
-------- -- -------------------------------
Dr. Alfred R. Globus 80 Chairman of the Board, Chief Executive Officer
and Director
Kenneth H. Globus 49 President, Chief Financial Officer, General
Counsel and Director
Robert S. Rubinger 58 Executive Vice President, Secretary, Treasurer
and Director
Charles W. Castanza 68 Senior Vice President and Director
Derek Hampson 61 Vice President
Joseph J. Vernice 42 Vice President
Lawrence Maietta 43 Director
Henry P. Globus 78 Director
Benjamin Wm. Mehlman 90 Director
Alan E. Katz 57 Director
Arthur Dresner 59 Director
|
Dr. Alfred Globus has been Chairman of the Board and Chief Executive Officer of the Registrant since July, 1988. He served as Chairman of the Board and President of the Registrant from the inception of the Registrant in 1942 until July, 1988. He has been a director of the Registrant since 1942.
Kenneth H. Globus has been President and General Counsel of the Registrant since July, 1988. He served as Vice President and General Counsel of the Registrant from July, 1983 until July, 1988. He has been a director of the Registrant since 1984. He became the Chief Financial Officer in November, 1997.
Robert S. Rubinger has been Executive Vice President and Secretary of the Registrant since July, 1988, and Treasurer since May, 1994. He served as Vice President and Secretary of the Registrant from February, 1982 until July, 1988. He has been a director of the Registrant since 1982.
Charles W. Castanza has been a Senior Vice President of the Registrant since March 2000. He served as Vice President from April, 1986 until March 2000. He served as Operations Manager of Chemicals and Pharmaceuticals of the Registrant from February, 1982 until April, 1986. He has been a director of the Registrant since 1982.
Derek Hampson has been a Vice President of the Registrant since October, 1987. He has served as Manager of the Eastern Chemical Corp. subsidiary since 1971.
Joseph J. Vernice has been a Vice President of the Registrant since February, 1995. He served as Assistant Vice President of the Registrant from November, 1991 until February, 1995.
Lawrence Maietta has been a partner in the public accounting firm of Bonamassa & Maietta, C.P.A.s in Brooklyn, NY since October, 1991. For more than five years prior to that he was a partner in the public accounting firm of Wilfred, Wyler & Co. in New York, NY. He was controller for the Registrant from October, 1991 until November, 1997, and a director of the Registrant since February, 1994.
Henry P. Globus has been a consultant to the Registrant since July, 1988. He served as Executive Vice President of the Registrant from 1982 until July, 1988. He has been a director of the Registrant since 1947.
Benjamin William Mehlman was formerly a judge and attorney in private practice until he retired from the practice of law in February, 1999. From 1984 to 1998 he had been counsel to the law firm of William T. Friedman and its predecessor, Friedman and Shaftan. He has been a director of the Registrant since 1964.
Alan E. Katz has been a partner in the law firm of Greenfield Stein & Senior, LLP, New York, NY since November, 1984. He has been a director of the Registrant since February, 1994.
Arthur Dresner is an attorney in private practice and an independent business consultant. From June 1998 to the present he has been engaged as "Of Counsel" to the law firm of Reed Smith, LLP (formerly
McAulay Nissen Goldberg Kiel & Hand in New York City). From 1974 until 1997 he was employed as a Vice President in the corporate development area and general management of ISP. He has been a director of the Registrant since April, 1997.
Dr. Alfred R. Globus and Henry P. Globus are brothers. Kenneth H. Globus is the son of Henry P. Globus and the nephew of Dr. Alfred R. Globus. There are no other family relationships between any directors or officers of the Registrant.
Compliance with Section 16(a) of the Exchange Act
The information required by this section is incorporated herein
by reference to the section entitled "Directors and Executive Officers -
Section 16(a) Beneficial Ownership Reporting Compliance" of the proxy
statement for the 2001 annual meeting of stockholders ("2001 Proxy
Statement").
The information required by this Item is incorporated herein by reference to the section entitled "Compensation of Directors and Executive Officers - Summary Compensation Table" of the 2001 Proxy Statement.
The information required by this Item is incorporated herein by reference to the section entitled "Voting Securities and Principal Stockholders - Security Ownership of Management" of the 2001 Proxy Statement.
The Registrant previously had a split dollar life insurance arrangement with Alfred R. Globus, its Chairman and Chief Executive Officer ("Insured"). For fiscal years 1995 through 1998 Registrant made non-interest-bearing advances totaling $348,161 to cover its portion of the policy premium. The Insured had agreed to repay the Registrant in the event the policy was ever terminated, which it was in July, 2000. In August, 2000 the Insured executed a Promissory Note in the amount of $348,161 plus interest at the rate of 6.6% per annum from July 8, 2000. The note is due and payable on July 8, 2003. In 2000 the Insured paid to the Registrant $205,000 by transferring to the Registrant 40,000 shares of his stock of the Registrant, which was valued at $5.125 per share, the closing price on the date of the transfer of the stock. Of this amount, $4,155 was applied to accrued interest, and $200,845 to principal, leaving an outstanding balance as of December 31, 2000 of $147,316. This method of repayment was approved by the Board of Directors of Registrant.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
3(a) Certificate of Incorporation of the Registrant as filed April 22, 1987. Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated September 21, 1987 (the "1987 8-K").
3(b) Certificate of Merger of United-Guardian, Inc. (New York) with and into the Registrant as filed with the Secretary of State of the State of Delaware on September 10, 1987. Incorporated by reference to Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended February 29, 1988 (the "1988 10-K").
3(c) By-laws of the Registrant. Incorporated by reference to Exhibit 4.2 to the 1987 8-K.
4(a) Specimen Certificate for shares of common stock of the Registrant. Incorporated by reference to Exhibit 4(a) to the 1988 10-K.
10(a) Qualified Retirement Income Plan for Employees of the Registrant, as restated April 1, 1976. Incorporated by reference to Exhibit 11(c) of the Registrant's Registration Statement on Form S-1 (Registration No. 2-63114) declared effective February 9, 1979.
10(b) Employment Termination Agreement dated July 8, 1988 between the Registrant and Henry Globus. Incorporated by reference to Exhibit 10(i) to the Registrant's Annual Report on Form 10-K for the 10-month transition period from March 1, 1991 to December 31, 1991.
10(c) Distribution Agreement between the Registrant and Societe D'Etudes Dermatologies, dated November 20, 1991. Incorporated by reference to Exhibit 10(k) to the Registrant's Annual Report on Form 10-K for the 10-month transition period from March 1, 1991 to December 31, 1991.
10(d) Exclusive Distributor Agreement between the Registrant and ISP Technologies Inc., dated July 5, 2000.
10(e) Promissory Note executed by Alfred R. Globus on August 11, 2000 in the amount of $348,161.
21 Subsidiaries of the Registrant:
Name Under
Jurisdiction of Which it does
Name Incorporation Business
------ ------------- --------
Eastern Chemical Corporation New York Eastern Chemical Corporation
Transcontinental Processes Australia N/A
(Pty.) Ltd.*
Dieselite Corporation** Delaware N/A
Paragon Organic Chemicals, New York Paragon Organic Chemicals
Inc.
|
* Inactive without assets ** Inactive
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNITED-GUARDIAN, INC.
Dated: March 19, 2001 By: /s/ Alfred R. Globus
--------------------
Alfred R. Globus
Chief Executive Officer
& Director
|
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
----------------------- --------------------------------- ---------------
By:/s/ Alfred R. Globus Chief Executive Officer, Director March 19, 2001
------------------------ (Principal Executive Officer)
Alfred R. Globus
By:/s/ Kenneth H. Globus President, General Counsel, March 19, 2001
------------------------ Director, Chief Financial
Kenneth H. Globus Officer(Principal Financial
and Accounting Officer)
By:/s/ Robert S. Rubinger Executive Vice President, March 19, 2001
------------------------ Secretary, Treasurer, Director
Robert S. Rubinger
By:/s/ Charles W. Castanza Senior Vice President, Director March 19, 2001
------------------------
Charles W. Castanza
By:/s/ Henry P. Globus Director March 19, 2001
------------------------
Henry P. Globus
By:/s/ Benjamin Wm. Mehlman Director March 19, 2001
------------------------
Benjamin Wm. Mehlman
By:/s/ Lawrence F. Maietta Director March 19, 2001
------------------------
Lawrence F. Maietta
By:/s/ Alan Katz Director March 19, 2001
------------------------
Alan E. Katz
By:/s/ Arthur Dresner Director March 19, 2001
------------------------
Arthur Dresner
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----------
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets as of December 31,
2000 and 1999 F-3 - F-4
Consolidated Statements of Earnings for the Years
Ended December 31, 2000 and 1999 F-5
Consolidated Statements of Stockholders' Equity
and Comprehensive Income for the Years Ended
December 31, 2000 and 1999 F-6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2000 and 1999 F-7
Notes to Consolidated Financial Statements F-8 - F-21
|
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
United-Guardian, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of United-Guardian, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United-Guardian, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
GRANT THORNTON LLP
Melville, New York
February 23, 2001
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
2000 1999
--------- ---------
CURRENT ASSETS
Cash and cash equivalents ........................ $2,226,812 $2,014,556
Temporary investments............................. 2,736,886 1,050,238
Marketable securities............................. 270,924 286,791
Accounts receivable, net of allowance for doubtful
accounts of $47,300 and $60,700, respectively 801,070 984,791
Inventories ...................................... 1,464,564 1,311,183
Prepaid expenses and other current assets ........ 169,605 220,723
Deferred income taxes ............................ 224,688 174,193
---------- ----------
Total current assets ............... 7,894,549 6,042,475
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land ............................................. 69,000 69,000
Factory equipment and fixtures ................... 2,613,203 2,471,632
Building and improvements ........................ 1,985,342 1,980,404
Waste disposal plant ............................. 133,532 133,532
---------- ----------
4,801,077 4,654,568
Less accumulated depreciation .................... 3,533,542 3,290,120
---------- ----------
1,267,535 1,364,448
---------- ----------
OTHER ASSETS
Processes and patents, net of accumulated
amortization of $894,802 and $842,957,
respectively .................................. 86,995 138,840
Split dollar life insurance ...................... - 348,161
Note receivable-officer .......................... 147,316 -
Other ............................................ 1,000 1,000
---------- ----------
235,311 488,001
---------- ----------
$9,397,395 $7,894,924
========== ==========
|
The accompanying notes are an integral part of these financial statements.
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
-------- ---------
CURRENT LIABILITIES
Dividends payable ............................ $ 486,114 $ 391,131
Accounts payable ............................. 178,035 281,422
Accrued expenses ............................. 262,120 195,932
Taxes payable ................................ 79,450 -
Current portion of long-term debt ............ 6,036 10,192
-------- --------
Total current liabilities ............... 1,011,755 878,677
-------- --------
LONG-TERM DEBT, net of current portion ........... - 6,036
-------- --------
DEFERRED INCOME TAXES ............................ 10,000 10,000
-------- --------
|
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; authorized,
10,000,000 shares; issued, 4,901,139 and
4,889,339 shares, respectively; outstanding,
4,861,139 and 4,889,339, respectively ...... 490,114 488,934
Capital in excess of par value ................ 3,373,417 3,343,417
Accumulated other comprehensive income (loss).. (3,274) 14,736
Retained earnings ............................. 4,720,383 3,153,124
Treasury stock, at cost; 40,000 shares ........ (205,000) -
---------- ----------
8,375,640 7,000,211
---------- ----------
$9,397,395 $7,894,924
========== ==========
|
The accompanying notes are an integral part of these financial statements.
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
2000 1999
----------- ------------
Revenue
Net sales ....................... $10,447,374 $ 9,136,733
Costs and expenses
Cost of sales ................... 5,058,022 4,953,207
Operating expenses .............. 2,260,455 2,063,299
----------- -----------
7,318,477 7,016,506
----------- -----------
Earnings from operations ... 3,128,897 2,120,227
Other income (expense)
Interest expense ................ (536) ( 581)
Investment income................ 238,144 112,811
Gain on sale of assets .......... - 4,796
Other ........................... - (72)
----------- -----------
Earnings before income taxes 3,366,505 2,237,181
Provision for income taxes .......... 1,313,132 847,000
----------- -----------
NET EARNINGS ............... $ 2,053,373 $ 1,390,181
=========== ===========
Earnings per common share (basic
and diluted)..................... .42 .28
=========== ===========
Basic weighted average shares ....... 4,884,439 4,885,770
=========== ===========
Diluted weighted average shares ..... 4,909,888 4,907,224
=========== ===========
|
The accompanying notes are an integral part of these financial statements.
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Years ended December 31, 1999 and 2000
Accumulated
Common stock Capital in other
----------------------- excess of comprehensive Retained Treasury Comprehensive
Shares Amount par value income (loss) earnings stock Total income
--------- ----------- ---------- ------------- --------- -------- --------- -------------
Balance, January 01, 1999 4,883,139 $ 488,314 $ 3,330,874 $ (330) $2,154,074 $5,972,932
Issuance of common stock in
connection with exercise
of stock options ........ 6,200 620 12,543 13,163
Unrealized gains on stock
marketable securities,
net of deferred income
taxes of $8,766 ......... 15,066 15,066 $ 15,066
Net earnings ............... 1,390,181 1,390,181 1,390,181
Dividends declared ......... (391,131) (391,131)
----------
Comprehensive income $1,405,247
--------- ----------- ----------- ------------ ----------- --------- ---------- ==========
Balance, December 31, 1999 4,889,339 488,934 3,343,417 14,736 3,153,124 - 7,000,211
Issuance of common stock in
connection with exercise
of stock options ........ 11,800 1,180 30,000 31,180
Unrealized loss on
marketable securities,
net of deferred income
tax benefit of $10,713... (18,010) (18,010) $ (18,010)
Net earnings ............... 2,053,373 2,053,373 2,053,373
Dividends declared ......... (486,114) (486,114)
Acquisition of treasury stock.. $(205,000) (205,000)
----------
Comprehensive income $2,035,363
--------- ----------- ----------- ------------ ---------- ---------- ---------- ==========
Balance, December 31, 2000 4,901,139 $ 490,114 $ 3,373,417 $ (3,274) $4,720,383 $(205,000) $8,375,640
========= =========== =========== ============ ========== ========== ==========
|
The accompanying notes are an integral part of these financial statements.
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
2000 1999
--------- ----------
Cash flows from operating activities
Net earnings ....................................$2,053,373 $1,390,181
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization ............... 295,267 312,259
Net gain on sale of equipment ............... - (4,796)
Net loss on sale of marketable securities.... - 2,391
(Recovery of) provision for bad debts........ (7,649) 7,806
Deferred income taxes ....................... (39,782) (6,641)
Provision for inventory obsolescence ........ - 10,000
Increases (decreases) in cash resulting from
changes in operating assets and liabilities
Accounts receivable .................... 191,370 307,521
Inventories ............................ (153,381) (171,051)
Prepaid expenses and other assets ...... 46,963 (50,412)
Accounts payable ....................... (103,387) (36,551)
Accrued expenses and taxes payable ..... 145,638 70,553
---------- -----------
Net cash provided by operating activities .. 2,428,412 1,831,260
---------- -----------
Cash flows from investing activities
Acquisition of plant and equipment............... (146,509) (94,682)
Proceeds from the sale of plant and equipment.... - 7,300
Net change in temporary investments..............(1,686,648) (527,046)
Purchase of marketable securities................ (12,856) (209,082)
Proceeds from sale of marketable securities...... - 24,854
--------- ---------
Net cash used in investing activities .... (1,846,013) (798,656)
--------- ---------
Cash flows from financing activities
Principal payments on long-term debt ............ (10,192) (10,001)
Proceeds from exercise of stock options ......... 31,180 13,163
Dividends paid .................................. (391,131) (341,820)
--------- ---------
Net cash used in financing activities ...... (370,143) (338,658)
--------- ---------
Net increase in cash and cash equivalents ........... 212,256 693,946
Cash and cash equivalents, beginning of year ........ 2,014,556 1,320,610
---------- ----------
Cash and cash equivalents, end of year ..............$2,226,812 $2,014,556
========== ==========
|
The accompanying notes are an integral part of these financial statements.
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
United-Guardian, Inc. (the "Company") is a Delaware corporation that operates in two business segments: (1) the Guardian Laboratories Division conducts research, product development, manufacturing and marketing of pharmaceuticals, cosmetics, health care products, medical devices and proprietary industrial products, and (2) the Eastern Chemical Division distributes a line of fine organic chemicals, research chemicals, test solutions, indicators, dyes and reagents. Two major product lines, Lubrajel and Renacidin, included in the Guardian Laboratories Division, accounted for approximately 76% and 67% of consolidated sales for the years ended December 31, 2000 and 1999, respectively.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of United-Guardian, Inc. and its wholly-owned subsidiaries, Eastern Chemical Corporation and Paragon Organic Chemicals, Inc. All intercompany accounts and transactions have been eliminated.
Revenue Recognition
The Company recognizes revenues as products are shipped and title passes to customers.
Statements of Cash Flows
For financial statement purposes (including cash flows), the Company considers as cash equivalents all highly liquid investments with an original maturity of three months or less. On December 6, 2000 the Company declared a cash dividend of $.10 payable on January 5, 2001 to stockholders of record as of December 18, 2000 aggregating $486,114. On December 8, 1999, the Company declared a dividend of $.08 payable on January 7, 2000 to stockholders of record as of December 15, 1999 aggregating $391,131. Cash payments for interest were $536 and $581 for the years ended December 31, 2000 and 1999, respectively. Cash payments for income taxes were $1,255,826 and $966,869 for the years ended December 31, 2000 and 1999, respectively.
Marketable Securities and Temporary Investments
Marketable securities include investments in equity mutual funds which are classified as "Available for Sale" securities and are reported at their fair values. Unrealized gains and losses on
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
NOTE A (continued)
"Available for Sale" securities are reported as accumulated other comprehensive income (loss) in stockholders' equity, net of related tax effects.
Temporary investments consist of certificates of deposit that mature in one year or less.
Inventories
Inventories are valued at the lower of cost or current market value. Cost is determined using the average cost method (which approximates FIFO). Inventory costs include material, labor and factory overhead.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated depreciation. Major replacements and betterments are capitalized while routine maintenance and repairs are expensed as incurred. Assets are depreciated under both accelerated and straight-line methods. Depreciation charged to earnings as a result of using accelerated methods was not materially different than that which would result from using the straight-line method for all periods presented. Certain factory equipment and fixtures are constructed by the Company using purchased materials and in-house labor. Such assets are capitalized and depreciated on a basis consistent with the Company's purchased fixed assets.
Estimated useful lives are as follows:
Factory equipment and fixtures 5 - 7 years Building 40 years Building improvements Lesser of useful life or 20 years Waste disposal plant 7 years |
Processes and Patents
Processes and patents are amortized over periods ranging from 5 to 15 years. Amounts are shown net of accumulated amortization.
Long-Lived Assets
It is the Company's policy to evaluate and recognize an impairment to its long-lived assets if it is probable that the recorded amounts are in excess of anticipated undiscounted future cash flows.
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
NOTE A (continued)
Fair Value of Financial Instruments
The Company has estimated the fair value of financial instruments using available market information and other valuation methodologies in accordance with SFAS No. 107, "Disclosures About Fair Value of Financial Instruments." Management of the Company believes that the fair value of financial instruments, consisting of accounts receivable and payable and long-term debt, approximates carrying value due to the short payment terms associated with its accounts receivable and payable and the interest rates associated with its long-term debt.
Concentration of Credit Risk
Accounts receivable potentially expose the Company to concentrations of credit risk. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited. At December 31, 2000 and 1999, three and two customers, respectively, had balances greater than 10% of the Company's accounts receivable aggregating 38% and 43%, respectively.
Income Taxes
Deferred tax assets and liabilities reflect the future tax consequences of the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Research and Development
The Company's research and development expenses are recorded in the year incurred. Research and development expenses were approximately $294,000 and $267,000 for the years ended December 31, 2000 and 1999, respectively.
Advertising Costs
Advertising costs are expensed as incurred. During 2000 and 1999 the Company incurred $111,480 and $121,793 of advertising costs, respectively.
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
NOTE A (continued)
Earnings Per Share Information
Basic earnings per share is based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share is based on the weighted average number of common and potential common shares outstanding. The calculation takes into account the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average price during the year.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Segment Reporting
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related Information," for the year ended December 31, 1998. SFAS No. 131 requires that the Company disclose certain information about its business segments defined as "components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance."
NOTE B - INVENTORIES
Inventories consist of the following:
December 31, December 31,
2000 1999
----------- ----------
Raw materials and work-in-process ...... $ 261,891 $ 279,851
Finished products and fine chemicals ... 1,202,673 1,031,332
---------- ----------
$1,464,564 $1,311,183
========== ==========
|
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
NOTE C - NOTES PAYABLE - BANKS
The Company has a line of credit agreement with one bank which provides for borrowings of up to $700,000 and expires on May 31, 2001. It is the Company's intention to renew the line of credit agreement before it expires. Interest under the line is at the bank's prime rate plus 1/2%. The outstanding line of credit agreement contains financial covenants relating to minimum net worth, working capital, current ratio, debt to capitalization and maintenance of compensating balances. There were no outstanding borrowings at December 31, 2000 and 1999.
NOTE D - LONG-TERM DEBT
The Company financed the purchase of transportation equipment with proceeds of an installment loan. The loan, which is collateralized by the underlying equipment, requires monthly payments of $868 including interest through July 31, 2001.
NOTE E - INCOME TAXES
The provision for income taxes consists of the following:
Year ended Year ended
December 31, December 31,
2000 1999
--------- ---------
Current
Federal .......................... $1,150,997 $ 727,841
State ............................ 201,917 125,800
--------- ---------
1,352,914 853,641
--------- ---------
Deferred
Federal .......................... (34,452) (5,751)
State ............................ (5,330) (890)
--------- ---------
(39,782) (6,641)
--------- ---------
Total provision ............ $1,313,132 $ 847,000
========= =========
|
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
The following is a reconciliation of the Company's effective income tax rate to the Federal statutory rate:
Year ended Year ended
December 31, December 31,
2000 1999
-------------- --------------
(000's) % (000's) %
------- --- ------- ---
Tax expense at statutory Federal income
tax rate .............................. $1,145 34% $ 756 34%
State income taxes, net of Federal benefit 130 4 83 4
Nondeductible expenses.................... 1 -- 1 --
Other, net ............................... 37 1 7 --
----- ---- ----- ----
Actual tax expense ....................... $1,313 39% $ 847 38%
===== ==== ===== ====
|
NOTE E (continued)
The tax effects of temporary differences which comprise the deferred tax assets and liabilities are as follows:
December 31, December 31,
2000 1999
----------- ------------
Deferred tax assets
Accounts receivable .................... $ 17,643 $ 22,642
Unrealized loss on marketable securities 1,947 -
Inventories ............................ 149,946 149,946
Other................................... 55,152 10,371
--------- ---------
224,688 182,959
--------- ---------
Deferred tax liabilities
Unrealized gain on marketable securities (8,766)
Other .................................. (10,000) (10,000)
--------- ---------
(10,000) (18,766)
--------- ---------
Net deferred tax asset ..................... $ 214,688 $ 164,193
========= =========
|
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
NOTE F - BENEFIT PLANS
Pension Plan
The Company has a noncontributory defined benefit pension plan which covers substantially all of its employees. Benefits are based on years of service and employees' compensation prior to retirement. Amounts are funded in accordance with the requirements of ERISA (Employee Retirement Income Security Act of 1974) and the plan is administered by a trustee who is responsible for payments to retirees. The plan assets primarily consist of cash equivalents, bonds, commercial paper and mortgage-backed securities, and are recorded at fair value within the plan.
The following table sets forth the plan's funded status:
Year ended Year ended
December 31, December 31,
2000 1999
--------- ---------
Change in Benefit Obligation:
Projected benefit obligation at beginning of year... $1,495,013 $1,319,983
Service cost........................................ 62,133 57,975
Interest cost....................................... 96,113 85,313
Actuarial loss...................................... 64,452 60,003
Benefits paid....................................... (64,780) (28,261)
--------- ---------
Projected benefit obligation at end of year....... $1,652,931 $1,495,013
========= =========
Change in Plan Assets:
Fair value of plan assets at beginning of year... $1,178,904 $1,086,920
Actual return on plan assets..................... 120,630 35,745
Employer contributions........................... 75 679 84,500
Benefits paid.................................... (64,780) (28,261)
--------- ---------
Fair value of plan assets at end of year....... $1,310,433 $1,178,904
========= =========
Reconciliation of Funded Status:
Funded status (underfunded)...................... $ (342,498) $ (316,109)
Unrecognized net actuarial loss.................. 328,305 304,931
Unrecognized transition obligation............... 8,795 13,292
Unrecognized prior service cost.................. 51,917 57,203
--------- ---------
Prepaid benefit cost........................... $ 46,519 $ 59,317
========= =========
|
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
NOTE F (continued)
The net periodic benefit cost for the years ending December 31 includes the following components:
December 31, December 31,
2000 1999
----------- -----------
Components of net periodic benefit cost:
Service cost..................................... $ 62,133 $ 57,975
Interest cost.................................... 96,113 85,313
Expected return on plan assets................... (93,405) (87,073)
Recognized net actuarial loss.................... 13,853 5,822
Amortization of transition obligation............ 4,497 4,497
Amortization of prior service cost............... 5,286 5,286
--------- ---------
Net periodic benefit cost..................... $ 88,477 71,820
========= =========
Weighted-average assumptions as of December 31:
2000 1999
----------- --------
Discount rate...................................... 6.50% 6.50%
Expected long term rate of return.................. 8.00% 8.00%
Weighted average rate of compensation increase..... 5.55% 5.55%
|
Amortization method................................ Straight-Line Straight-Line
401(k) Plan
The Company maintains a 401(k) Plan for all of its employees. Under the plan, employees may defer up to 15% of their weekly pay as a pretax investment in a savings plan. In addition, the Company makes a contribution of 50% of each employee's elective deferral up to 2% of weekly pay for a 4% employee deferral. Employees become fully vested in Company contributions after one year of employment. 401(k) Company contributions were approximately $36,000 and $31,000 for the years ended December 31, 2000 and 1999, respectively.
Stock Option Plans
The Company maintains two stock option plans, the 1993 Employee Incentive Stock Option Plan ("EISOP") and the Non-Statutory Stock Option Plan for Directors ("NSSOPD"), each of which provides for the issuance of up to 100,000 shares of common stock. Such options are exercisable either upon grant or after a waiting period specified in the agreement. The Company has adopted only the disclosure
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
NOTE F (continued)
provisions of SFAS No. 123, "Accounting for Stock-based Compensation." It applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its plans. Accordingly, no compensation costs have been recognized for either plan.
If the Company had elected to recognize compensation expense based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed by SFAS No. 123, the Company's net income and basic and diluted earnings per share as of December 31, 2000 and 1999 would be reduced to the pro forma amounts indicated below:
2000 1999
---------- ----------
Net income
As reported ....................... $ 2,053,373 $ 1,390,181
Pro forma ......................... 2,050,705 1,348,849
Earnings per share - basic
As reported ....................... $ .42 $ .28
Pro forma ......................... .42 .28
Earnings per share - diluted
As reported ....................... $ .42 $ .28
Pro forma ......................... .42 .27
|
The pro forma amounts may not be representative of future disclosure because they do not take into account pro forma compensation expense related to grants made before 1995. The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the year ended December 31, 1999: expected volatility of 64.3% to 64.9%; risk-free interest rates of 5.07% to 5.48%; expected life of three to five years; and expected dividends of 2.5%. No stock options were granted under either of the plans in 2000.
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
NOTE F (continued)
The following summarizes the stock option transactions under both plans:
Weighted
Weighted average
average fair value
Number exercise at date
EISOP outstanding price of grant
----- ------------ ------- ----------
Options outstanding at January 1, 1999.. 44,450 $3.49
Granted ........................... 23,200 3.03 $1.49
Exercised .......................... (200) 2.06
Surrendered/Expired ................ (2,350) 3.16
-------
Options outstanding and exercisable
at December 31, 1999 ............... 65,100 3.34
-------
Exercised (9,800) 2.76
-------
Options outstanding and exercisable
at December 31, 2000 ................ 55,300 3.44
=======
Available for grant at December 31, 2000.. 20,100
=======
NSSOPD
------
Options outstanding at January 1, 1999.. 16,000 $2.04
Granted ........................... 8,000 3.00 $1.24
Exercised ......................... (6,000) 2.13
------
Options outstanding at December 31, 1999 18,000 2.49
------
Exercised (2,000) 2.06
------
Options outstanding at December 31, 2000 16,000 2.55
======
Available for grant at December 31, 2000 64,000
======
|
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
NOTE F (continued)
Summarized information about stock options outstanding under the two plans at December 31, 2000 is as follows:
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------
Range of Number Weighted Weighted Number Weighted
Exercise Outstanding Average Average Exercisable Average
Prices at Remaining Exercise at Exercise
December 31,2000 Contractual Price December 31,2000 Price
Life
---------------- ---------- -------- ---------------- --------
EISOP
-----
$1.88 - $3.30 34,300 6.58 $2.49 34,300 $2.49
$5.00 21,000 3.07 5.00 21,000 5.00
------------- ------ ---- ----- ------ -----
$1.88 - $5.00 55,300 5.25 $3.45 55,300 $3.45
NSSOPD
--------
$1.88 - $3.00 16,000 1.98 $2.55 16,000 $2.55
|
NOTE G - RELATED PARTY TRANSACTION
The Registrant previously had a split dollar life insurance arrangement with Alfred R. Globus, its Chairman and Chief Executive Officer ("Insured"). For fiscal years 1995 through 1998 Registrant made non-interest bearing advances totaling $348,161 to cover its portion of the policy premium. The Insured had agreed to repay the Registrant in the event the policy was ever terminated, which it was in July, 2000. In August 2000 the Insured executed a Promissory note in the amount of $348,161 plus interest at the rate of 6.6% per annum beginning July 8, 2000. The note is due in full on July 8, 2003. In 2000 the Insured paid to the Registrant $205,000 by transferring to the Registrant 40,000 shares of his stock of the Registrant, which was valued at $5.125 per share, the closing price on the date of the transfer of the stock. Of this amount, $4,155 was applied to accrued interest and $200,845 to principal, leaving an outstanding balance as of December 31, 2000 of $147,316. This method of repayment was approved by the Board of Directors of the Registrant. The cost of the surrendered shares have been classified as "Treasury stock" in the accompanying balance sheet.
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
NOTE H - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share at December 31, 2000 and 1999:
2000 1999
---------- ----------
Numerator:
Net earnings $ 2,053,373 $ 1,390,181
Denominator:
Denominator for basic earnings
per share (weighted average shares) 4,884,439 4,885,770
Effect of dilutive securities:
Employee stock options 25,449 21,454
--------- ---------
Denominator for diluted earnings per
share (adjusted weighted-average
shares) and assumed conversions 4,909,888 4,907,224
========= =========
Basic and diluted earnings per share $ 0.42 $ 0.28
========= =========
|
Options to purchase 21,000 shares of the Company's common stock have been excluded from the computation of diluted earnings per share in 2000 and 1999 as their inclusion would be antidilutive.
NOTE I - NATURE OF BUSINESS AND SEGMENT INFORMATION
The Company has the following two reportable business segments:
Guardian Laboratories and Eastern Chemical. The Guardian segment
conducts research, development and manufacturing of pharmaceuticals,
medical devices, cosmetics, products and proprietary specialty
chemical products. The Eastern segment distributes fine chemicals,
solutions, dyes and reagents.
The accounting policies used to develop segment information correspond to those described in the summary of significant accounting policies. Segment earnings or loss is based on earnings or loss from operations before income taxes. The reportable segments are distinct business units operating in different industries. They are separately managed, with separate marketing and distribution systems. The following information about the two segments is for the years ended December 31, 2000 and 1999.
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
NOTE I (continued)
2000 1999
---------------------------------- ----------------------------------
GUARDIAN EASTERN TOTAL GUARDIAN EASTERN TOTAL
------------ ----------- ----------- ------------ ----------- -----------
Revenues from external customers $ 8,937,634 $ 1,509,740 $10,447,374 $ 7,321,871 $ 1,814,862 $ 9,136,733
Depreciation and amortization 160,080 - 160,080 172,392 - 172,392
Segment earnings (loss) before
income taxes 3,258,271 50,795 3,309,066 2,269,346 31,371 2,300,717
Segment assets 2,898,447 492,755 3,391,202 2,321,345 542,683 2,864,028
Expenditure for segment assets 121,936 - 121,936 45,863 - 45,863
Reconciliation to Consolidated Amounts
Earnings before income taxes
----------------------------
Total earnings for reportable segments $ 3,309,066 $ 2,300,717
Other earnings 237,608 116,954
Corporate headquarters expense (180,169) (180,490)
--------- ---------
Consolidated earnings before income taxes $ 3,366,505 $ 2,237,181
Assets
------
Total assets for reportable segments $ 3,391,202 $ 2,864,028
Corporate headquarters 6,006,193 5,030,896
--------- ---------
Total consolidated assets $ 9,397,395 $ 7,894,924
========= =========
|
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000 and 1999
NOTE I (continued)
Other Significant Items
-----------------------
2000 1999
-------------------------------------- --------------------------------------
Segment Consolidated Segment Consolidated
Totals Corporate Totals Totals Corporate Totals
---------- ----------- ------------ ---------- ----------- ------------
Interest expense $ - $ 536 $ 536 $ - $ 581 $ 581
Expenditures for assets 121,936 24,573 146,509 45,863 48,819 94,682
Depreciation and amortization 160,080 135,187 295,267 172,292 139,865 312,157
|
Geographic Information
----------------------
2000 1999
---------------------- ----------------------
Revenues Long-Lived Revenues Long-Lived
Assets Assets
---------- ----------- ---------- -----------
United States $ 5,934,842 $ 1,354,530 $ 5,346,641 $ 1,503,288
France 1,440,462 850,498
Other countries 3,072,070 2,939,594
---------- --------- --------- ---------
$10,447,374 $ 1,354,530 $ 9,136,733 $ 1,503,288
========== ========= ========= =========
Major Customers
---------------
Customer A (Guardian) $ 3,244,400 $ 2,190,899
Customer B (Guardian) 1,283,504 777,342
All other customers 5,919,470 6,168,492
---------- ---------
$10,447,374 $ 9,136,733
========== =========
|
NOTE J - CONTINGENCIES
While the Company has product claims arise from time to time in the ordinary course of its business, the Company is not currently involved in any material product claims. Historically, the settlement of such claims has not had a material adverse effect on the Company's financial position and results of operations.
EXCLUSIVE DISTRIBUTOR AGREEMENT
This Agreement is made on July 5, 2000, between United-Guardian, Inc., a corporation organized under the laws of Delaware with offices at 230 Marcus Blvd., Hauppauge, New York, 11788 ("UGI") and ISP Technologies Inc., a corporation organized under the laws of Delaware with offices at State Highway 146 & Industrial Road, Texas City, Texas 77590 ("ISP").
WHEREAS, UGI is a manufacturer of specialty chemical products; and
WHEREAS, ISP and its affiliated companies have substantial experience and expertise in marketing specialty chemical products to various markets; and
WHEREAS, UGI desires ISP to act as its (i) exclusive distributor in certain markets and territories and (ii) non-exclusive distributor for certain other markets and territories, for certain of its specialty chemical products in accordance with the terms and conditions of this Agreement;
NOW THEREFORE, UGI and ISP hereby agree as follows:
I. APPOINTMENT; PRODUCTS
1.1 UGI hereby appoints and authorizes ISP as the exclusive distributor of certain of its specialty chemical products listed on Schedule A, which is attached hereto and incorporated herein (the "PRODUCT(S)"), which may be modified from time to time upon mutual written agreement of the parties as new PRODUCTS are added to this Agreement and older PRODUCTS discontinued. ISP shall have (i) the exclusive right to market and sell the PRODUCTS into the personal care market (the "PC MARKET") in the EXCLUSIVE TERRITORY and the non-exclusive right to market and sell the PRODUCTS into the PC MARKET in the NON-EXCLUSIVE TERRITORY, and (ii) the non-exclusive right to sell the PRODUCTS into the industrial and medical markets (the "I&M MARKET") in the TERRITORY. The geographical areas comprising the "EXCLUSIVE TERRITORY" (which is defined as the geographic areas where ISP has exclusive marketing and sales rights hereunder with respect to the PC MARKET) and the "NON-EXCLUSIVE TERRITORY" (which is defined as the geographic areas where ISP has non-exclusive marketing and sales rights hereunder), are set forth on Schedule B, attached hereto and incorporated herein. References herein to "TERRITORY" mean both the "EXCLUSIVE TERRITORY" and "NON-EXCLUSIVE TERRITORY".
1.2 ISP accepts the appointment and agrees to use its commercially reasonable best efforts to maintain, promote, develop and increase sales of the PRODUCTS. ISP may delegate the performance of any or all of its obligations hereunder to an affiliate.
1.3 It is understood that the authority granted to ISP hereunder is the authority to market the PRODUCTS and does not constitute ISP as the agent or legal representative of UGI for any purpose whatsoever, and ISP is not authorized to assume or create any obligation or responsibility, express or implied, on behalf of or in the name of UGI, or to bind UGI in any manner whatsoever, except as provided pursuant to the terms and conditions of this Agreement or as may be authorized by UGI from time to time.
1.4 UGI shall have the right to continue to sell PRODUCTS to certain pre-existing customers. Prior to, or concurrently with, the execution of this Agreement the parties shall agree, in writing, on the list of such pre-existing customers. UGI shall also have the exclusive right to market and sell Lubrajel and Hydrajel-based products for use as vaginal moisturizers, sexual lubricants or for other internal applications, such as mouth or nose moisturizers and ISP shall not receive any compensation for those sales or for sales to any of UGI's aforementioned pre-existing customers.
1.5 ISP has the right of first refusal to market and sell in the TERRITORY any new products for the PC MARKET that UGI develops without the assistance of third parties, except for "FINISHED FORMULATIONS" as defined in Section 2.3 of this Agreement. UGI shall notify ISP, in writing, of any such new product and ISP shall have sixty (60) days from the date of its receipt of such notice to exercise the aforementioned right of first refusal. If ISP exercises said right, such new product shall then be deemed a "PRODUCT" hereunder.
II. EXCLUSIVITY
2.1 From the execution date of this Agreement set forth in the preamble hereof and during the entire term of this Agreement, UGI shall not appoint any other distributor of the PRODUCTS for the PC MARKET in the EXCLUSIVE TERRITORY. UGI represents that it has no existing distributor arrangements of any nature whatsoever with any third party regarding direct or indirect sale and/or marketing of the PRODUCTS for the PC MARKET in the EXCLUSIVE TERRITORY. UGI shall have the right to appoint additional distributors in the TERRITORY for the I&M MARKET, and shall give ISP written notice of such appointment at least thirty (30) days prior to the effective date of any such appointment. UGI shall also have the right to terminate ISP's non-exclusive right to market and sell PRODUCTS in a country or countries in the NON-EXCLUSIVE TERRITORY at any time upon sixty (60) days prior written notice in order to appoint an exclusive distributor for that country or countries; provided, however, ISP shall have the right to continue to market and sell PRODUCTS hereunder to any customer(s) that have purchased any PRODUCT from ISP within the (i) one year period prior to the date of ISP's receipt of such notice, or (ii) six (6) month period after such receipt.
2.2 Except as specified in Section 2.3 below, UGI shall not, directly or indirectly, sell or market the PRODUCTS in the EXCLUSIVE TERRITORY for the PC MARKET, other than to ISP or as otherwise mutually agreed upon in writing.
2.3 UGI shall retain the exclusive right to market and sell "FINISHED FORMULATIONS," as hereinafter defined. ISP shall not receive any compensation for sales of FINISHED FORMULATIONS, and ISP may sell FINISHED FORMULATIONS only upon the prior written consent of UGI which consent shall not unreasonably be withheld or delayed. For purposes of this Agreement, "FINISHED FORMULATION(S)" shall mean all PRODUCTS which are formulated with other ingredients and/or a formulation of two or more products manufactured by UGI which is intended to be used, as is, without further processing as an end-use product. Prior to, or concurrently with, the execution of this Agreement, the parties shall agree, in writing, on a list of the then current FINISHED FORMULATIONS. UGI shall notify ISP, in writing, of any new FINISHED FORMULATION UGI intends to add to said list at least thirty (30) days prior to the marketing of such new FINISHED FORMULATION, during which period the parties shall discuss the effect of such new FINISHED FORMULATION on the marketing and sale of PRODUCTS hereunder.
2.4 UGI may develop and/or solicit customers for the PRODUCTS in the TERRITORY for the PC MARKET, either directly or through third parties; provided, however, UGI shall refer, and shall cause all such third parties to refer, any such customers for the PC MARKET to ISP.
3.1 Unless earlier terminated or extended as provided herein, the term of this Agreement shall be deemed to have commenced as of January 1, 2000 and shall continue through and including December 31, 2002.
3.2 If ISP's purchases of PRODUCTS (in pounds) from UGI during the second contract year (calendar year 2001) are at least 125% of the amount of PRODUCTS (in pounds) it purchased from UGI during calendar year 1999 ("BASE YEAR"), the initial three year term will be extended for a fourth year. Regardless of whether ISP meets the aforementioned purchase target for the second contract year, if ISP's purchases of PRODUCTS from UGI during the third contract year (calendar year 2002) are at least 140% of such BASE YEAR purchases of PRODUCTS, the initial three year term will be extended for a fourth and fifth year.
3.3 Prior to, or concurrently with, the execution of this Agreement the parties shall agree, in writing, upon the BASE YEAR figure to be used for purposes of Section 3.2 above.
3.4 (a) If UGI enters into a transaction in which (i) UGI
transfers or sells all or substantially all of (x) its business related
to the PC MARKET or (y) its assets, (ii) UGI consolidates with or merges
with or into any other entity and is not the surviving corporation, or
(iii) all or substantially all of its outstanding voting securities are
sold or otherwise transferred to a third party, (in clauses (i), (ii) or
(iii) other than with respect to an affiliate), then UGI shall have the
right to terminate this Agreement. Notwithstanding the foregoing, UGI
shall have the right to transfer or sell a Product line that does not
meet the criteria set forth in clause (i), above; provided, however, UGI
shall not have the foregoing right to terminate this Agreement and the
purchase targets set forth in Section 3.2, above, shall be reduced by the
parties to reflect such transfer or sale; provided further, however, the
first sentence of Section 3.4(d), below, shall apply to any such transfer
or sale.
(b) If ISP enters into a transaction in which (i) ISP
transfers or sells all or substantially all of (x) its business related
to the PC MARKET or (y) its assets, (ii) ISP consolidates with or merges
with or into any other entity and is not the surviving corporation, or
(iii) all or substantially all of its outstanding voting securities are
sold or otherwise transferred to a third party, (in clauses (i), (ii) or
(iii) other than with respect to an affiliate), then ISP shall have the
right to terminate this Agreement.
(c) If the transferee, purchaser or surviving entity of
a transaction referred to in (i), (ii) or (iii) of subparagraphs (a) or
(b) above, is a direct competitor of the other party to this Agreement
not effecting such transaction, that party shall also have the right to
terminate this Agreement.
(d) The party effecting such a transaction shall provide written notice specifying the date of the transaction to the other party within thirty (30) days of such date. The termination rights set forth in Sections 3.4(a), 3.4(b) or 3.4(c) hereof must be exercised in the aforementioned notice or, in writing, within sixty (60) days of the date of receipt of said notice or such right shall be deemed waived notwithstanding Section 20.2 hereof. Such termination shall be effective ninety (90) days after the date of receipt of the actual notice of termination.
3.5 For purposes of this Agreement "affiliate(s)" means any person or entity that controls, is under common control with, or is controlled by a party hereto. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") means possession, directly or indirectly, of power to direct or cause the direction of management and policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise).
IV. PRICES; PAYMENT; DELIVERY; AND TITLE
4.1 PRICES
(a) Prior to, or concurrently with, the execution of this Agreement the parties shall agree, in writing, upon the initial prices for the PRODUCTS hereunder. All prices will be FOB Hauppauge, New York, and prices shall be subject to increase on thirty (30) days prior written notice to ISP; provided, however, any such increase in prices in any calendar year shall not exceed five percent (5%) of the aforementioned initial price for each PRODUCT, and total price increases shall not exceed 20% of the initial price for each PRODUCT during the five year term of the Agreement (if the Agreement remains in effect for five years).
(b) In the event UGI experiences a significant increase in costs by reason of conditions beyond its control, including but not limited to, environmental or regulatory requirements, or substantial increases in the cost of raw material purchased from a third party and used by UGI to manufacture a PRODUCT (and expressly excluding labor and overhead), UGI, upon at least thirty (30) days prior written notice to ISP, and subject to Section 4.1(e), below, shall be entitled to increase its prices in excess of the 5% a year increase as provided in Section 4.1(a), above, to reflect such a significant increase in costs. In such event, UGI will supply ISP with information to support such a price increase, which information shall accompany the aforementioned notice. In no event, however, shall UGI be required to disclose the name or source of any of its raw materials.
(c) Any price increase may be instituted only once each calendar year. Increased prices shall apply with respect to PRODUCT shipped after the effective date of any such increase.
(d) If ISP believes it must reduce pricing on a specific order to meet a competitor's prices and/or to respond to unusual market conditions, ISP may request price reductions from UGI on a case-by-case basis and/or request UGI to reduce prices in general to respond to such unusual market conditions and UGI shall negotiate any such requested price reduction with ISP in good faith.
(e) If ISP advises UGI, in writing, within the thirty
(30) day notice period referred to in Section 4.1(b), above, that it does
not accept UGI's justification for the increase, such increase shall not
be effective. ISP shall have an independent accounting firm, mutually
acceptable to both UGI and ISP (the "Auditors"), at ISP's sole cost and
expense, conduct an audit of such significantly increased costs. If the
Auditors verify in a certified written statement to ISP and UGI that such
costs have actually increased, as justified by UGI, in a calendar year,
then UGI may increase the prices for each affected PRODUCT by the actual
percentage increase in such costs so certified by the Auditors, such
increase to be retroactively effective to the date thirty (30) days
following the date of UGI's original notice of increase provided pursuant
to Section 4.1(b).
4.2 If, at any time during the term of this Agreement, UGI sells any PRODUCT, either directly or indirectly, to another purchaser, including, but not limited to, another distributor, at a price (excluding taxes and freight charges) which is lower than the price to ISP hereunder, then UGI shall offer such price for such PRODUCT to ISP for the period of time such price is offered to such other purchaser.
Once in any twelve (12) consecutive calendar month period ISP shall have the right, exercisable by written notice to UGI, to obtain verification of the prices charged by UGI to purchasers of the PRODUCTS other than ISP. Verification shall be performed by an independent outside auditor selected by ISP. UGI shall afford such auditor access to customer invoices and such other records necessary to verify PRODUCT prices. Upon completion of the review, the auditor shall issue to both parties a written report of the findings, which shall be final and binding upon the parties and which shall include the amount of any price adjustment. If the auditor requires a credit to ISP's account of at least $1000, the cost of the audit shall be borne by UGI otherwise, the cost shall be borne by ISP. Any credit to ISP's account shall be made within ten (10) days of UGI's receipt of the auditor's written report.
4.3 UGI shall invoice ISP for all shipments, and payment is due thirty (30) days from the date of the invoice.
4.4 Title, risk of loss of, and liability for the PRODUCTS shall remain with UGI until delivery of the PRODUCTS to a common carrier reasonably acceptable to ISP at UGI's facilities in Hauppauge, New York. UGI warrants that, at the time of delivery, the PRODUCTS shall be free and clear of all liens and encumbrances.
4.5 Duplicate shipments or overages may be returned by ISP to UGI freight collect if such duplicate shipment or overage is the fault of UGI.
V. SPECIFICATIONS
5.1 UGI warrants that the PRODUCTS shall meet UGI's published PRODUCT specifications, which specifications may be modified by UGI from time to time upon sixty (60) days prior written notice to ISP. Prior to, or concurrently with, the execution of this Agreement, the parties shall agree, in writing, upon such specifications. ISP shall have the right at all times to reject PRODUCTS not meeting the published specifications, which PRODUCTS will then be returned and replaced, and replacement PRODUCTS shipped as requested by ISP at UGI's sole cost and expense, and UGI shall reimburse ISP for any and all costs and expenses incurred by ISP as a result of such rejection. ISP does not waive any rights, including, but not limited to, the foregoing, by unloading, selling and/or using PRODUCT that does not meet such specifications unless it knew at the time of such unloading, selling, or use that the PRODUCT did not meet the specifications. UGI shall bear all risks of any nature whatsoever with respect to such PRODUCTS that have been so rejected by ISP and shall indemnify ISP as set forth in Section 9.1 with respect to such PRODUCTS.
5.2 UGI shall provide ISP with certificates of analysis for each individual lot and Material Safety Data Sheets and any updates thereto.
VI. SUPPORT AND SALES
6.1 All orders for PRODUCTS shall be made by ISP's standard purchase order. Neither such standard purchase order nor any document used by UGI shall amend or modify any provisions of this Agreement.
6.2 ISP shall market and sell the PRODUCTS under UGI's tradenames or trademarks. UGI hereby grants to ISP an exclusive license to use the UGI tradenames or trademarks associated with the PRODUCTS in the TERRITORY as long as UGI itself has the right to use such mark in a particular country in the TERRITORY. With the exception of the Registration of the "Lubrajel" trademark in Japan by Showa Denko and/or Kose, UGI represents and warrants that, to the best knowledge of its officers and directors, no third parties have registered UGI's tradenames or trademarks. Upon termination of this Agreement and after sale or disposal of all PRODUCT in ISP's inventory, ISP shall cease using UGI's tradenames and trademarks. In any part of the TERRITORY in which UGI has not registered its trademarks, ISP shall have the right, but not the obligation, to do so at its own expense under UGI's name, and shall be entitled to an exclusive royalty-free license to use the same as long as this Agreement remains in effect and thereafter as provided in the preceding sentence. UGI shall cooperate fully with ISP in the event ISP decides to pursue any such registration, and will furnish to ISP any documentation it may reasonably request to accomplish such registration. In such cases in which ISP does so register UGI's trademark, it shall be ISP's sole right, but not its obligation, at its expense to initiate or defend any trademark infringement actions connected with the use of said mark in those areas on behalf, and in the name, of UGI as owner of said mark.
UGI shall provide ISP with such information and technical assistance as is reasonably necessary for ISP to service all customers for the PRODUCTS. The extent of such information and technical assistance shall be determined solely by UGI in the exercise of its reasonable business judgment.
6.3 UGI shall designate a UGI employee to be the PRODUCT representative for ISP. Such employee shall assist ISP in resolving technical PRODUCT and specification matters and shall provide such other assistance as may be reasonably requested by ISP for ISP to successfully market the PRODUCTS and provide a high standard of service in the promotion and sale of the PRODUCTS. ISP shall designate an ISP employee to be its technical contact to interface with UGI's PRODUCT representative regarding technical PRODUCT and specification matters.
6.4 Notwithstanding expiration or earlier termination of this Agreement for any reason whatsoever, ISP shall have the right to continue to sell or otherwise dispose of any and all PRODUCTS in ISP's inventory at such prices as ISP may elect unless UGI agrees to buy back such inventory at the price paid to UGI by ISP for such PRODUCTS, including ISP's shipping expenses and related costs. Shipping expenses back to UGI will also be the responsibility of UGI.
6.5 UGI shall have the right to terminate this Agreement upon thirty (30) days prior written notice, if during the term of this Agreement ISP purchases or manufactures, or causes a third party to purchase or manufacture on its behalf, for sale in the TERRITORY for the PC MARKET or I&M MARKET, any products which have substantially the same specifications as the PRODUCTS (as published by UGI prior to such purchase or manufacture) and are substantially chemically equivalent to, or intended to be used as direct substitutes for, the PRODUCTS.
6.6 Within sixty (60) days after the end of the first six (6)
months of each calendar year and within sixty (60) days after the end of
each calendar year, ISP shall submit to UGI a report on its marketing
efforts for the PRODUCTS in the EXCLUSIVE TERRITORY during that six (6)
month period of that calendar year, and, with respect to the second
report, its plans for the following calendar year. Such reports shall
include a breakdown of sales by country if it is reasonably practical for
ISP to do so. Any data regarding the PRODUCTS that is generated by ISP in
connection with its efforts to market the PRODUCTS or to obtain
regulatory approval, as provided in Section 10.2 hereof, shall be
provided to UGI as obtained by ISP. Such reports shall include
information on sales, customer needs and requests, and problems
encountered and shall be deemed CONFIDENTIAL INFORMATION, as defined in
Section 14.1 hereof, whether or not so marked.
6.7 After termination of this Agreement for any reason, ISP
shall provide to UGI a list of all ISP customers that have purchased
PRODUCTS within the twelve (12) month period prior to the effective date
of such termination. Such list shall include the customer name, PRODUCTS
purchased by that customer, and the quantities of PRODUCTS purchased
during said twelve (12) month period. With respect to customers located
in the United States, such list shall be provided to UGI within fifteen
(15) days of the effective date of such termination, and within such
period of time as is reasonably possible after the effective date of such
termination with respect to customers located in the remainder of the
TERRITORY.
7.1 UGI shall package the PRODUCTS in accordance with the methods that it uses to package PRODUCTS for its other distributors, and will do so in accordance with all pertinent provisions of any applicable federal, state, municipal, provincial or other local law or regulation of which it is aware or is made aware; provided, however, ISP may repackage PRODUCT, in which event ISP will use only repackaging containers and other packing materials and labels that comply with all pertinent provisions of any applicable federal, state, provincial, municipal or other local law or regulation.
8.1 UGI, at no cost to ISP, shall provide ISP with reasonable quantities of samples for those PRODUCTS that ISP does not stock, to be shipped to ISP in accordance with ISP's instructions and at ISP's expense. For PRODUCTS that ISP does stock, it will be ISP's responsibility to use its own stock to provide samples.
8.2 UGI shall retain a reasonable amount of PRODUCT as a sample to allow for testing of each finished batch lot. Such sample shall be labeled with the PRODUCT name, code, batch/lot number, and date of sample and shall be retained by UGI for a period of three (3) years from the date of manufacture of such batch lot. At any time, ISP shall have the right to request UGI to deliver, and UGI shall thereupon forthwith deliver, a portion of such sample to ISP or its designee.
IX. INDEMNIFICATION
9.1 Neither party hereto shall be liable for any indirect, incidental, or consequential damages or lost profits caused by or arising out of its performance or failure to perform hereunder. However, UGI will defend, indemnify and hold ISP, its affiliates, assigns, and their respective agents, representatives, officers, directors and employees harmless from and against all claims, demands, settlements, judgments, losses, liabilities and any and all related costs and expenses (including reasonable and necessary attorneys' fees) arising out of or related, in any manner whatsoever, to (i) the PRODUCTS (including but not limited to the manufacture, transportation, sale, use and/or disposal of the PRODUCTS) except to the extent solely and directly caused by ISP's negligence or willful misconduct in handling, storing, repackaging, or transporting the PRODUCTS, (ii) any breach of any representation, warranty or agreement made by UGI herein; (iii) any failure to comply with applicable laws and regulations; and/or (iv) any act or omission of UGI in any way related to this Agreement.
ISP will defend, indemnify and hold UGI and its affiliates, assigns and their respective agents, representatives, officers, directors and employees harmless from and against all claims, demands, settlements, judgments, losses, liabilities and any and all related costs and expenses (including reasonable and necessary attorneys' fees) arising out of or related to (i) ISP's handling, storing, repackaging, transportation, marketing, advertising, sale, use, disposal, or label content of the PRODUCTS (except if such sale, handling, storing, repackaging, transportation, marketing, advertising, use, disposal or label content is based on erroneous information provided by UGI) or (ii) ISP's failure to comply in all material respects with applicable laws and regulations, and with respect to both (i) and (ii), only to the extent the same are solely and directly caused by ISP.
9.2 Notwithstanding any other provision set forth herein, the indemnity provisions set forth in Section 9.1 and elsewhere in this Agreement shall survive termination or expiration of this Agreement.
X. REGULATORY, HEALTH AND SAFETY MATTERS
10.1 UGI, at its sole cost and expense, shall perform such health and safety tests related to the PRODUCTS and take any other action which may be required by any governmental authority having jurisdiction of the same, which are or may become necessary to ensure the continued manufacture of the PRODUCTS. UGI represents and warrants that, to the best knowledge of its officers and directors, it is not aware of any regulations prohibiting the sale of PRODUCTS in the TERRITORY for the PC MARKET and/or the I&M MARKET. UGI does not warrant that it will be able to comply with the health and safety regulations in all parts of the TERRITORY, but shall use commercially reasonable efforts to comply when so requested by ISP. UGI shall share with ISP the results of any such health and safety tests and all other health, safety and/or regulatory information now or hereafter in its possession relating to the PRODUCTS and their uses.
10.2 ISP may, in its sole discretion and at its own expense, choose to obtain governmental approvals that may be required to market the PRODUCTS in the TERRITORY. UGI will, at ISP's request and expense, execute and deliver whatever documents are necessary in order to enable ISP to obtain such approvals; however, all such documents or information which UGI deems confidential will, at UGI's option, be provided directly to the regulatory agencies involved, with appropriate procedures satisfactory to UGI (in its reasonable business judgment) being followed to maintain the confidentiality of the information.
10.3 In the event UGI cannot, or chooses not to, and ISP chooses not to comply with any government regulations affecting the sale of PRODUCTS in the TERRITORY, the parties shall, in good faith, renegotiate the purchase targets set forth in Section 3.2, above, to account for diminished sales potential.
XI. INSURANCE
11.1 UGI shall maintain, at its sole cost and expense, the following kinds of insurance with minimum limits as set forth below and naming ISP as additional insured (and such insurance shall be primary without regard to any other insurance ISP shall maintain or otherwise have in force):
Kinds of Insurance Limits of Liability Comprehensive General Minimum $1,000,000 Liability (including products per occurrence liability) and a broad form vendors endorsement naming ISP Excess (umbrella) $4,000,000 liability (including products liability) and a broad form vendors endorsement naming ISP |
The insurance coverages set forth in this Article XI shall be provided by insurers reasonably acceptable to ISP. UGI shall provide ISP with a certificate of insurance evidencing that all such insurance coverages are in effect prior to commencement of the INITIAL TERM, and that none of such policies of insurance shall be terminated, canceled or modified by the insurers unless ISP is provided with at least thirty (30) days prior written notice of the same.
11.2 Notwithstanding any other provision set forth herein, the insurance provisions set forth in Section 11.1 shall survive expiration or earlier termination of this Agreement.
12.1 In the event that either party hereto shall default in any material respect in the performance of any obligation specified herein, the non-defaulting party shall have the right, in addition to any other rights or remedies it may have hereunder or at law or in equity, to so notify the other party thereof in writing specifying the nature of such default and, if such default is not remedied within thirty (30) days from the date of such notice, then the non-defaulting party shall have the right, in addition to any other rights or remedies it may have hereunder or at law or in equity, to terminate this Agreement immediately.
12.2 In the event either party shall initiate any bankruptcy, insolvency, receivership or similar proceedings, or such proceedings are initiated against either party, and such party fails to have such proceedings dismissed within forty-five (45) days after such proceedings are initiated, the other party may terminate this Agreement immediately.
13.1 Neither party shall assign this Agreement, in whole or in part, whether by operation of law or otherwise, without the other party's prior written consent, which consent shall not be unreasonably withheld or delayed, except that either party may assign this Agreement without such consent to (i) an affiliate, or (ii) any entity that purchases all or substantially all of the assets of that party or of the business to which this Agreement relates, or (iii) an entity with which that party may merge or consolidate.
14.1 Each party hereto shall keep confidential and shall not disclose in any manner to any third party nor use for any purposes other than those contemplated by this Agreement, during the term hereof and for a period of ten (10) years from the expiration or earlier termination of this Agreement, any proprietary technical or business information marked as "CONFIDENTIAL" and acquired from the other party hereto in connection with or in the course of performance of this Agreement ("CONFIDENTIAL INFORMATION").
14.2 CONFIDENTIAL INFORMATION shall not include any information which: (a) was in the possession of the receiving party prior to the disclosing party's disclosure to the receiving party and which was not previously obtained either directly or indirectly from the disclosing party; (b) was at the time of the disclosing party's disclosure to the receiving party or thereafter becomes, through no fault of the receiving party, part of the public domain by publication or otherwise; or (c) was furnished to the receiving party by any third party not subject to restrictions on disclosure.
14.3 Notwithstanding Section 14.1, any invention, discovery or improvements which either party hereto or its employees, agents or advisors solely develops or makes as a result of information received under this Agreement or the performance of its obligations hereunder, shall become the property of such party as long as such invention, discovery, or improvement is not the result of use of the proprietary CONFIDENTIAL INFORMATION of the other party. Both parties agree to perform, and agree to use best efforts to have their employees, agents and advisors perform, all lawful acts requested by the party owning such property, at such owning party's expense, to:
(a) perfect title therein in such owning party or its nominee; and
(b) enable such owning party or its nominee to obtain and maintain patent or other legal protection therefor anywhere in the world.
14.4 ISP and UGI shall have joint ownership of any invention, discovery or improvements made as a result of the parties' joint efforts, or the joint efforts of their employees, agents or advisors, pursuant to a written agreement entered into by UGI and ISP which shall include, but not be limited to, the description and purpose of the joint effort and the terms and conditions governing the exploitation of any patent(s) resulting from the same, such agreement to be entered into prior to the initiation of any joint efforts. ISP and UGI shall file joint applications for all patents arising from such efforts in all countries the parties deem necessary. The costs of obtaining such patents shall be borne equally by the parties, however, if one party seeks to file a patent in a jurisdiction where the other party does not wish to file, that party may make such a filing and all such costs shall be borne by the filing party.
14.5 The terms and conditions of this Agreement, including, but not limited to, the information set forth in the document(s) described in Sections 1.4, 2.3, 3.3 and 4.1(a) hereof, shall be treated as CONFIDENTIAL INFORMATION hereunder, except to the extent required by government regulations. ISP acknowledges that UGI may be required to file this Agreement and/or such document(s) with the Securities and Exchange Commission ("SEC"), disclose the subject matter hereof or thereof in a letter to its shareholders, and/or issue a press release regarding such subject matter. UGI shall advise ISP, in writing, if UGI intends to file with the SEC, or otherwise disclose, all or any portion of the information set forth in the document(s) described in Sections 1.4, 2.3, 3.3 and/or 4.1(a), above, such that ISP shall have sufficient time to prepare a request for confidential treatment with respect to such information for filing with the SEC and UGI shall timely file such request with the SEC and shall not file or otherwise disclose such information pending the SEC's final determination with respect to such request.
ISP and UGI shall mutually agree to any press release to be issued with respect to the subject matter hereof.
14.6 Notwithstanding any other provision set forth herein, the provisions of this Article XIV shall survive expiration or earlier termination of this Agreement.
XV. INTELLECTUAL PROPERTY RIGHTS
15.1 UGI represents and warrants, to the best knowledge and belief of its officers and directors, that UGI owns all right, title and interest in and to the manufacturing process and the patents, trademarks, copyrights and other intellectual property rights relating to the PRODUCTS except for patents that may be filed by other companies that refer to the use of one or more of the PRODUCTS in patent applications filed by those companies. UGI shall notify ISP, in writing, of any such patents with respect to which UGI has knowledge.
15.2 Except for Patent Number 3-72042 obtained by Kose in Japan for the use of Lubrajel in cosmetic uses/applications in Japan, UGI represents and warrants, to the best knowledge and belief of its officers and directors, that the manufacture and sale of the PRODUCTS by UGI to ISP and the distribution, promotion and sale of the PRODUCTS by ISP, does not and will not infringe any United States or foreign patent, trademark, copyright or other intellectual property rights of any third party. UGI warrants that formulations marketed by ISP's customers using any PRODUCT shall not infringe any UGI patents; provided, however, UGI does not warrant that such formulations shall not infringe existing or future patents of third parties.
15.3 UGI shall defend, indemnify and hold ISP, its affiliates, and their respective agents, representatives, officers, directors, employees and customers harmless from and against all claims, demands, settlements, judgments, losses, liabilities, penalties, fines and any and all related costs and expenses (including reasonable attorney's fees) arising out of any allegation that any PRODUCT sold by UGI to ISP under this Agreement infringes any United States or foreign patent, trademark, copyright or other intellectual property rights of any third party, up to an amount equal to the total REVENUES earned by ISP with respect to the infringing PRODUCT(S) in the country where such infringement allegedly occurred. For purposes of this Section 15.3 "REVENUES" shall exclude (a) discounts, rebates, returns and allowances, if actually allowed or granted to customers; and (b) sales, excise, and other taxes, transportation and insurance charges; if such items are actually included in the gross sales price to customers. ISP shall notify UGI of the commencement of any such suit or action promptly after receiving written notice of the same and provide UGI with reasonable and necessary cooperation, at UGI's sole cost and expense, in defense or resolution of any such suit or action.
16.1 All notices and consents required to be given hereunder shall be in writing and given: by hand; by certified mail (return receipt requested); by facsimile confirmed by certified mail (return receipt requested); or, by recognized overnight courier service, addressed to the intended recipient as follows:
If to ISP ISP Technologies Inc.
c/o ISP Management Co., Inc.
1361 Alps Road
Wayne, New Jersey 07470
Attn: General Counsel
Telephone: (973) 628-3925
Fax: (973) 628-3196
If to UGI: United-Guardian, Inc.
230 Marcus Blvd.
Hauppauge, New York 11788
Attn: President
Telephone: (631) 273-0900
Fax:(631) 273-0858
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or to such other address as either party may from time to time designate in writing to the other.
Any controversy or claim arising from or related to this Agreement or the breach thereof shall be settled by a single arbitrator in an arbitration administered by the American Arbitration Association in New York City in accordance with the Expedited Procedures of its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.
The validity and interpretation of this Agreement and the legal relations of the parties shall be governed by the laws of the United States of America and State of New York without regard to the choice of law provisions. Each party consents to submit to the exclusive jurisdiction of the federal or state courts located in the State of New York for the enforcement of any arbitration award made pursuant to Article XVII.
Neither party shall be liable for delay or failure to perform in whole or in part any provision of this Agreement by reason of contingencies beyond its control, including but not limited to: acts of God; fires; floods; earthquake; lightning; storms; explosions; mechanical breakdowns; military operations; civil commotions; failure of public services; wars; sabotage; accidents; labor disputes or shortages; governmental laws, ordinances, rules, regulations, whether valid or invalid; inability to obtain material, equipment or transportation; and any other similar occurrences. The party so affected shall promptly give written notice to the other party whenever such contingency or other act becomes reasonably foreseeable, and the affected party shall use its best efforts to overcome the effects of the contingency as promptly as possible, and shall promptly give written notice to the other party of the cessation of such contingency. Neither party, however, shall be required to resolve a strike, lockout or other labor problem in a manner which it, in its sole discretion, does not deem proper and advisable. In the event of a force majeure circumstance which prevents UGI from supplying and/or ISP from purchasing and/or selling PRODUCTS, the purchase targets set forth in Section 3.2 hereof shall be reduced prorata based upon the length of time the force majeure circumstance is in effect.
XX. ENTIRE AGREEMENT AND AMENDMENTS; WAIVER; CAPTIONS
20.1 This Agreement, the Schedules (which are attached hereto and incorporated herein), and the information described in Sections 1.4, 2.3, 3.3, 4.1(a), 5.1 and 14.4 hereof constitute the entire agreement and understanding between the parties with respect to its subject matter and supersede all prior agreements, written or oral, between the parties concerning such subject matter and specifically the Exclusive Distributor Agreements between the parties dated (i) December 9, 1994 (as amended September 20, 1996) and (ii) September 20, 1996. This Agreement and the Schedules hereto may not be changed or modified except in writing signed by a duly authorized representative of each party. The parties may use purchase orders, acknowledgments or other documentation but the same are intended for convenience and record purposes only and any provisions which may be contained therein are not intended to (nor shall they serve to) add to or otherwise amend or modify any provisions of this Agreement.
20.2 No failure of either party to enforce any provisions hereof shall constitute a waiver by that party of its right subsequently to enforce the same or any other provision hereof.
No waiver of any provision of this Agreement shall be effective unless in writing signed by the party claimed to have waived such provision.
20.3 The captions used herein are for reference only, and shall not in any way affect the meaning or interpretation of this Agreement.
If any provision of this Agreement shall hereafter be held to be invalid or unenforceable for any reason in a particular jurisdiction, such provision shall be reformed to the maximum extent permitted to preserve the parties' original intent, failing which, such provision shall be severed from this Agreement and the remainder of this Agreement shall continue in full force and effect. Such occurrence shall not have the effect of rendering the provision in question invalid in any other jurisdiction or in any other case or circumstance, or of rendering invalid any other provision contained herein, to the extent that such other provision is not actually in conflict with any applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
ISP TECHNOLOGIES INC. UNITED-GUARDIAN, INC. By:/s/ Sunil Kumar By:/s/ Ken Globus ----------------- ----------------- Title: President Title: President |
Schedule A
PRODUCTS
Lubrajel MS, CG, NP, DV, TW, PF, Oil, and LC
Oil of Orchids (water soluble) Oil of Orchids (oil soluble) Lubrasil and Lubrasil DS Aquathik Thixotrate B122 Lubraslide Klensoft Super Ti Powder Ultra Ti Powder Unitwix Confetti Confetti II
Any improvements to, or variations of, the above-listed PRODUCTS will also be deemed PRODUCTS for purposes of this Agreement with the exception of (a) the FINISHED FORMULATIONS specified herein and (b) any improvements to, or variations of, Lubrajel and Hydrajel-based products for use as vaginal moisturizers, sexual lubricants or for other internal applications, such as mouth or nose moisturizers.
Schedule B
TERRITORY
North America: All (including, but not limited to, Mexico and Puerto Rico)
Central & South America: Brazil, Argentina, Columbia, Venezuela, Chile, Guatemala, Peru, Dominican Republic
Asia/Pacific: People's Republic of China, India, Hong Kong, Japan, Singapore, Malaysia, Thailand, Australia, New Zealand, Taiwan, Philippines, Indonesia
Central Europe: Russia, Hungary, Czech Republic, Poland, Romania, Bulgaria,
Western Europe: Germany, Austria, Spain, Portugal, Netherlands, Belgium, Greece
Scandinavia: Denmark, Sweden, Finland, Norway
Middle East: Israel, Turkey
Africa: South Africa
All other countries not specified above, excluding the United
Kingdom, France, Switzerland, Italy, and Korea
PROMISSORY NOTE
$348,161.00 Date: August 11, 2000
For value received, the undersigned ALFRED R. GLOBUS, residing at 26-53 210th Street, Bayside, New York 11360 (the "Borrower"), promises to pay to the order of UNITED-GUARDIAN, INC. (the "Lender"), at 230 Marcus Blvd., Hauppauge, New York 11788 (or at such other place as the Lender may designate in writing) the sum of $348,161.00 with interest from July 8, 2000, on the unpaid principal at a rate of 6.6% annually until paid.
The unpaid principal and accrued interest shall be payable as follows:
yearly installments of interest only, beginning July 8, 2001 , and
continuing until July 8, 2003, (the "Due Date"), at which time the
remaining unpaid principal and interest shall be due in full. In addition
to the interest payments, the Borrower shall repay the principal at the
rate of $50,000 per year for the first four years of the loan beginning
July 8, 2001 and continuing on the eighth day of July each year
thereafter until July 8, 2003, at which time the remaining principal
balance, along with any accrued and unpaid interest, will be due and
payable.
All payments on this Note shall be applied first in payment of accrued interest and any remainder in payment of principal.
The Borrower promises to pay a late charge of $5.00 for each installment that remains unpaid more than 15 day(s) after its Due Date. This late charge shall be paid as liquidated damages in lieu of actual damages, and not as a penalty.
If any payment obligation under this Note is not paid when due, the remaining unpaid principal balance and any accrued interest shall become due immediately at the option of the Lender.
The Borrower reserves the right to prepay this Note (in whole or in part) prior to the Due Date with no prepayment penalty.
If any payment obligation under this Note is not paid when due, the Borrower promises to pay all costs of collection, including reasonable attorney fees, whether or not a lawsuit is commenced as part of the collection process.
If any of the following events of default occur, this Note and any other obligations of the Borrower to the Lender, shall become due immediately, without demand or notice:
1) the failure of the Borrower to pay the principal and any accrued interest in full on or before the Due Date;
2) the death of the Borrower
3) the filing of bankruptcy proceedings involving the Borrower as a debtor;
4) the application for the appointment of a receiver for the Borrower;
5) the making of a general assignment for the benefit of the Borrower's creditors;
6) the insolvency of the Borrower;
7) a misrepresentation by the Borrower to the Lender for the purpose of obtaining or extending credit.
If any one or more of the provisions of this Note are determined to be unenforceable, in whole or in part, for any reason, the remaining provisions shall remain fully operative.
This note may be repaid either in cash or in United-Guardian, Inc. ("Corporation") stock, at the option of the Lender. If Lender agrees to accept Corporation stock in payment of the indebtedness, the value of the stock applied towards the loan shall be the closing price of the stock on the date the stock is transferred on the books of the Corporation.
The Borrower waives presentment for payment, protest, and notice of protest and nonpayment of this Note.
No renewal or extension of this Note, delay in enforcing any right of the Lender under this Note, or assignment by Lender of this Note shall affect the liability or the obligations of the Borrower. All rights of the Lender under this Note are cumulative and may be exercised concurrently or consecutively at the Lender's option.
This Note shall be construed in accordance with the laws of the State of New York.
Signed this 11th day of August, 2000, at Hauppauge, New York.
Borrower:
/s/ Alfred R. Globus -------------------- Alfred R. Globus |